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Section 1: 10-K (FORM 10-K)

10-K
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36005
 
 
RETAILMENOT, INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
26-0159761
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
301 Congress Avenue, Suite 700
Austin, Texas 78701
(512) 777-2970
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Series 1 common stock, par value $0.001 per share
 
The NASDAQ Global Select Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
Large accelerated filer
ý
 
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, which was June 30, 2015, the aggregate market value of its common stock held by non-affiliates on that date was $683,105,278.
As of January 31, 2016, 49,511,564 shares of the registrant’s Series 1 Common Stock were outstanding.
 
 


Documents incorporated by reference:
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the Proxy Statement relating to our 2016 annual meeting of shareholders, which shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
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Table of Contents

PART 1
Forward Looking Statements
Except for the historical financial information contained herein, the matters discussed in this report on Form 10-K (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of RetailMeNot, Inc. and its management and may be signified by the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” or similar language (or the negative of these terms). You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under Part 1, Item 1A:“Risk Factors” and elsewhere in this report. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 
Item 1. Business.
Company Overview
We operate a leading digital savings destination connecting consumers with retailers, restaurants and brands, both online and in-store. In 2015, our marketplace featured more than 800,000 digital offers each month. Digital offers are offers, offer codes and brand or category specific discounts made available online or through mobile applications that are used by consumers to make online or in-store purchases directly from retailers (which we define to mean both retailers and restaurants, but excluding grocery retailers). Digital offers can include coupons, sales, consumer tips, advertisements, discounted digital gift cards redeemable at retailers or cash-back rebates associated with the purchase of a product or a consumer action. Our websites, mobile applications, email newsletters and alerts and social media presence enable consumers to search for, discover and redeem hundreds of thousands of relevant digital offers from retailers and brands. Our marketplace features digital offers across multiple product categories, including clothing; electronics; health and beauty; home and office; travel, dining and entertainment; personal and business services; and shoes. We believe our investments in digital offer content quality, product innovation and direct retailer relationships allow us to offer a compelling experience to consumers looking to save money, whether online or in-store.
We believe we are a trusted partner to retailers and brands. We provide our retailers and brands access to a large and engaged consumer audience. We help retailers and brands drive sales and acquire new customers online and in-store through our websites and mobile applications. In addition, our pay-for-performance model, from which a substantial majority of our revenues are derived, along with flat fee arrangements, enable us to structure mutually beneficial relationships with our paid retailers, providing them control and flexibility with respect their marketing spend and, in many cases, resulting in payment of a commission to us only after a sale is made.
Our Industry
The retail industry is large, and e-commerce and mobile commerce are growing rapidly. Internet and mobile devices have become an integral part of the consumers’ shopping experience and are increasingly influencing the consumers’ purchasing decision process online and in-store. The rise of mobile-optimized websites and applications has enabled consumers to use digital offers for purchases through their mobile devices or for in-store redemption at checkout. We believe that the adoption of location-based technologies will further contribute to this growth. Retailers and brands are recognizing the need to expand their online and mobile advertising initiatives. We believe many retailers and brands are re-allocating their budgets to the channels in which consumers are spending more of their time before making purchase decisions.
Retailers and brands are focused on the return on investment, or ROI, of their marketing spend and are adopting solutions, like digital offers, that allow them to measure and optimize the impact of their promotional campaigns. We believe that the direct response nature of digital offers, which allow for better consumer segmentation, targeting, tracking of redemptions and automated attribution to specific promotional campaign spend better facilitates the ability to measure ROI compared to more traditional advertising channels.
In addition, the speed and adaptability of digital offers allows retailers and brands to reach consumers whenever and wherever they are shopping. Further, retailers and brands are able to post digital offers quickly, edit and iterate on-the-go and modify the scale of campaigns dynamically based on consumer interest and marketing budgets. This compares favorably to

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traditional print couponing, which requires longer lead times and is a more manual and expensive process due to the additional overhead associated with printing and distributing physical offers.
Industry Challenges
Within this large addressable market, consumers and retailers and brands face various challenges that represent barriers to increased retail commerce activity, online and in-store.
Challenges for Consumers
 
Difficult to find relevant digital offers. Digital offers are most valuable to consumers when they relate to products and brands that consumers want. Consumers face a fragmented landscape as digital offers are available in many different formats across a large number of distribution channels. Traditional offers are available in newspapers, magazines and direct mail, while digital offers are available on the websites and mobile applications of retailers and brands, digital offer websites, in emails or embedded as advertising. Many digital offer websites and other distribution channels lack the breadth and depth to provide a relevant digital offer when a consumer wants it, whether online or in-store. In addition, few digital offer websites or mobile applications have the retailer and brand relationships and resources to build a comprehensive selection of digital offers for consumers. Consumers often have to resort to visiting multiple websites or mobile applications to check if a relevant digital offer from their preferred retailer or brand is available.
Unreliable digital offers. Many digital offer websites and mobile applications provide unreliable digital offers that may be declined by retailers, causing consumer frustration and disappointment. These websites and mobile applications lack the infrastructure and technology to review and validate digital offers that appear on their properties, resulting in digital offers that can expire without notice or are invalid.
Inconvenience associated with traditional offers. Traditional offers distributed via fragmented offline media such as newspapers and circulars are hard to discover, search and organize, and carry expiration dates that are difficult to track. They are often not easily available on-demand when a consumer is shopping and can rarely be redeemed across multiple channels, such as online and in-store.

Challenges for Retailers and Brands
 
Difficulty reaching consumers at scale. The increasing amount of digital content and the proliferation of mobile devices creates significant audience fragmentation. This fragmentation makes it difficult for retailers and brands to reach their target audience at scale and at a time when their purchase behavior can be influenced.
Difficulty engaging consumers across channels. With the shift in consumer engagement towards online, mobile and social channels, and the development of channels for online and mobile shopping that offer rapid delivery of goods ordered online, retailers and brands need an integrated multichannel solution to optimize their promotional efforts to increase traffic and drive sales. Creating consistent and integrated consumer engagement across their online, mobile and offline retail presence can represent a challenge for many retailers and brands. Additionally, if consumers have a poor experience with an offer it may negatively impact consumers’ image of the retailer or brand.
Ineffective and difficult to measure marketing solutions. Retailers and brands are looking to maximize the returns on their promotional campaigns. Many traditional marketing options do not allow retailers and brands to effectively measure the ROI of their marketing spend or collect behavioral consumer data to optimize their campaigns. Therefore, retailers and brands seek a solution that can provide pay-for-performance or transparency into the effectiveness of their promotional campaigns.
Our Solution
We operate a leading digital savings destination connecting consumers with retailers and brands. Consumers are able to visit a trusted destination that allows them to search for, discover and redeem digital offers from leading retailers and brands, online or in-store. We aggregate digital offers from retailers and brands, performance marketing networks, our large user community, our employees and outsourced providers. Retailers and brands are able to drive sales and acquire new customers by effectively attracting and engaging a large audience of consumers who are shopping across multiple channels. Our solution also enables retailers to better manage their customer acquisition spend and effectively measure their marketing ROI.


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Solutions for Consumers
We believe our content and high quality user experience continues to attract a large and engaged audience of consumers to our marketplace. Key elements of our solution for consumers include:
 
Save money with a broad selection of offers: Our breadth and depth of digital offer inventory, including digital offers from over 70,000 retailers and brands in 2015, enables consumers to save money on their everyday purchases. We aggregate digital offers available from retailers and brands, performance marketing networks, our large user community, our employees and outsourced providers, including digital offers exclusive to our marketplace. In 2015, more than two-thirds of the digital offers featured in our marketplace were submitted by users or sourced internally by us. The remainder of the digital offers featured in our marketplace were provided through performance marketing networks. In 2015, we featured more than 800,000 digital offers each month from retailers and brands across multiple product categories including clothing; electronics; health and beauty; home and office; travel, dining and entertainment; personal and business services; and shoes.
Anytime, anywhere availability, online and in-store: Consumers can search for and discover our digital offers at virtually any time via our websites, mobile applications, email newsletters and alerts or social media presence, whether on their desktop or mobile devices. Our mobile applications provide access to the online and in-store digital offers found in our marketplace, allowing consumers to search and discover the digital offers they need and use them to shop whenever and wherever they want. Consumers can also e-mail, text message, save or print our digital offers for later use. In addition, by utilizing location-based technology, our mobile applications notify our consumers of savings opportunities when they are shopping near major shopping malls and centers in the U.S. and the U.K. by sending alerts for digital offers that can be used in these locations.
Reliability and curation of digital offer content: We use a combination of technology and people to validate and curate our digital offer content. We use proprietary algorithms to change the display of our digital offer content and technology to validate select digital offer content within our marketplace. Our operations team actively monitors the most frequently visited digital offer content in our marketplace to ensure content quality and curates such digital offer content by updating and changing the display and description of digital offers. Additionally, we leverage feedback from our large user community and our proprietary algorithms to measure performance and relevancy of our digital offers. Our focus on digital offer quality and curation is intended to provide a high-quality experience for consumers.
Relevance and personalization: By having a selection of digital offers from thousands of large and small retailers, we can present more comprehensive and relevant content for our large and engaged user community. Consumers can sign up for email alerts for digital offers from their favorite retailers and brands. We use this and other information to keep our users informed via email and mobile alerts about digital offers we believe would be relevant to them. We have also continued to increase personalization of our websites, applications and email newsletters. For example, the homepage for RetailMeNot.com and the home screen in the RetailMeNot mobile application include personalized content recommendations based on a user’s favorite stores or browsing history.
Solutions for Retailers and Brands
We believe we are a trusted partner to retailers and brands with which we had contracts in 2015, or paid retailers. We provide our paid retailers access to a large and engaged consumer audience during their shopping experience. Key elements of our solution for paid retailers include:
 
Access to large consumer audience: We provide retailers access to one of the largest marketplace dedicated to digital offers, offering a large and engaged audience of consumers with intent to purchase. The scale of our platform increases our ability to drive conversion by rapidly disseminating and promoting digital offers to an engaged consumer audience at scale.
Multichannel engagement with consumers: Our websites and mobile applications offer retailers access to consumers who are shopping online and in-store. In 2015, we had more than 718 million visits to our websites and during the three month period ending December 31, 2015, averaged approximately 23.2 million mobile unique visitors each month. We also had more than 43.6 million email subscribers. In particular, our mobile websites and applications enable retailers to connect with consumers shopping online on their mobile devices and in-store by increasing consumer awareness of discounts and promotions available to them.
Broad array of digital offer types: We offer a wide range of digital offer types for retailers and brands to help drive their desired outcomes. For example, in 2015, we expanded our cash-back rebates onto certain of our websites and mobile applications. We believe this digital offer type appeals primarily to brands because it allows them to provide discounts directly to consumers that are not specific to a particular retailer. We believe this content type also appeals to retailers that do not traditionally use coupons and with which we did not traditionally have a paid relationship. We also

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introduced curated offers on specific products in the RetailMeNot mobile application, which is a departure from our traditional retailer-oriented presentation of content. The variety of solutions available in our marketplace, in our view, provides retailers and brands with a differentiated platform to drive recognition and sales.
Trusted partnerships and strategic dialogues: We maintain ongoing strategic dialogues in an effort to develop and maintain long-term relationships with our paid retailers. Our retailer and brands solutions team works closely with the marketing teams of our paid retailers to optimize the performance of their digital offers. We proactively work with our paid retailers to curate their digital offers to drive sales and build consumer trust. We believe our marketplace provides a consistent, high-quality user experience, which reflects positively on the image of our paid retailers.
Measurable ROI and pay-for-performance: We believe retailers and brands focus on channels with clearly quantifiable ROI and pay-for-performance transactional models. We derive a substantial majority of our revenues from commissions paid to us by paid retailers for redemption of digital offers. In those cases, our paid retailers pay a commission to us only after a consumer has made a purchase. Paid retailers are also able to track the performance of their digital offers in order to monitor and control key aspects of their campaign. Our quantifiable, pay-for-performance model allows paid retailers to effectively measure ROI while acquiring new customers, increasing sales and driving brand loyalty.
Our Competitive Strengths
Our competitive strengths include:
 
Global leader with strong scale and brands: We believe our strong brand recognition has allowed our marketplace to become a leading destination for consumers looking to save money on retail purchases. As a result, nearly 90% of traffic to our websites was generated from unpaid sources in 2015. In addition to RetailMeNot.com, our international brand portfolio includes VoucherCodes.co.uk in the U.K., Poulpeo.com and Ma-Reduc.com in France, Actiepagina.nl in the Netherlands, RetailMeNot.de in Germany, RetailMeNot.es in Spain and RetailMeNot.ca in Canada.
Trusted partner to leading retailers: In 2015, we maintained relationships with more than 12,000 paid retailers. We help retailers drive sales and acquire new customers through our multichannel marketplace. We also help our paid retailers optimize their digital offer campaigns to provide a consistent, high-quality user experience, which we believe reflects positively on the brand image of these retailers. As evidence of our successful partnerships with paid retailers, we have been able to grow over time the number of exclusive digital offers we offer to consumers. Exclusive digital offers are often more compelling offers, and therefore drive heightened consumer interest and help portray our marketplace as the leading destination for digital offers. Our pay-for-performance model enables us to have a mutually beneficial relationship with our paid retailers, as they pay a commission to us only after a sale is made. This model also allows our paid retailers to effectively measure marketing ROI.
Network effects: As more consumers use our websites and mobile applications, we attract more retailers and brands to our platform looking for a large audience to drive sales. As the number of retailers and brands in our marketplace increases, we are able to offer more and differentiated digital offers to consumers, which in turn attracts a larger consumer audience. As our consumer audience grows, retailers and brands are more willing to enter into paid relationships with us and provide us with exclusive digital offers to attract our audience of consumers. We believe that additional content, in the form of food and dining digital offers, cash-back rebates and discounted digital gift cards, will further increase the network effects of our marketplace.
Large community of actively engaged users: We foster and support a passionate user community that contributes to certain of our websites by submitting digital offers and helps curate the content on our websites. We leverage our community’s passion for savings and their participation in curating the content that we provide to deliver compelling and relevant offer selection to our broad consumer audience. We believe that this engagement by our consumers increases the quality of our content, while lowering our costs to curate and moderate that content ourselves.
Strong technology platform and proprietary data: Our technology platform is designed to provide the reliability and security necessary to support the large and growing base of consumers, retailers and brands in our marketplace. As engagement in our marketplace increases, we are able to collect more proprietary data on users and consumer shopping behavior, which allows us to further develop and improve our marketplace to better serve consumers and offer more value to retailers and brands. This data is difficult to replicate and enables us to offer retailers and brands insight into their digital offer performance. Additionally, our technology serves as a basis to design and support innovative solutions and to further automate and standardize our processes.



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Our Growth Strategy
Our objective is to become the leading digital savings destination connecting consumers with retailers, restaurants and brands, both online and in-store. Our strategies to achieve this goal include:
Grow depth of paid relationships with retailers. We have increased the resources we dedicate to our retailer and brand solutions team in order to deepen our relationships with existing paid retailers and attract new paid retailers worldwide. We believe that this value proposition will help us grow our share of marketing promotional spending among our large retailer base and attract new paid retailers to our marketplace. We also aim to further strengthen our value proposition for retailers by expanding our retailer solutions. For example, we have introduced sponsored category listings, more advertising opportunities, discounted digital gift cards, cash-back rebates, digital circulars and showcases.
Enhance mobile solutions and in-store enablement. We intend to further develop our mobile optimized websites and invest in our mobile applications, including location services capabilities, in order to increase consumer use and monetization of our solutions from mobile devices. We believe that this technology will allow us to introduce new solutions and grow the number of consumers and paid retailers using our mobile solutions.
Enhance the breadth of available offers. We intend to expand the breadth of digital offer types available on our websites and mobile applications, including increasing the selection and inventory of discounted digital gift cards for purchases at leading retailers and brands, adding contextual information about retailers and adding cash-back rebates to incentivize consumers to transact with our retail and brand partners. We believe that this differentiated content will delight consumers by offering new savings opportunities. This in turn, should increase the frequency with which consumers use our solutions and may enhance our value to consumers during more stages of their shopping journey.
Increase traffic and monetization. To drive increased consumer traffic and net revenues, we intend to continue to invest in marketing to increase brand awareness and our retailer and brand solutions team to obtain more exclusive digital offers, both of which will attract more consumers to our marketplace. We will continue to deploy our digital offer content through targeted and measured email newsletters and alerts, mobile alerts, our social media presence, and select advertising, as well as other offline media efforts to increase the frequency of visits to our properties. Given our scale, we also benefit from our network effects to increase traffic and conversion as more digital offers drive more consumer traffic and retail commerce activity, which in turn attracts more digital offers to our marketplace. We also intend to introduce new methods of monetizing our consumer traffic, particularly the traffic to our mobile websites and applications, through a variety of methods, including improved attribution credit to us for the sales that we help drive for our retail and brand partners, the use of pricing structures other than our traditional commission based model (particularly with respect to advertising) and the use of multichannel digital offer solutions.
Invest in technology, innovation and data capabilities. Innovation is a key element of our strategy, and we will continue to make significant investments in research and development to further improve our user interface, solution and platform integration, features and functionality, as well as our online and mobile technologies and data collection and analytic capabilities. Our product innovation initiatives are designed to minimize friction in consumers’ shopping experience with digital offers from start to finish and provide our retailers and brands with solutions that increase consumer sales. Our key technology investment strategies include: further integrating our online and mobile product offerings; developing personalization tools to further tailor digital offers on our websites, mobile applications and email products to increase user frequency; and leveraging data and analytics to encourage repeat usage of our websites and mobile applications by consumers and help paid retailers better understand consumer behavior and measure the effectiveness of their marketing spend, across our multichannel marketplace. We also intend to continue to increase the efficiency and scalability of our international operations through deployment of certain standardized components of our technology.
Invest in our community of users. We intend to make investments to foster and support the user community of certain of our websites and mobile applications. These investments include enhancements to our process for submitting digital offers located by our users, new social features and improvements in user experience. We believe these investments will drive increased engagement by users leading to increased frequency of use as well as continuing to encourage submission of digital offers.
Expand internationally. We have successfully leveraged our established business model to expand into attractive new geographies, including the U.K., France, Germany, the Netherlands, Spain and Canada. We intend to further grow our international presence in these markets and continue our geographic expansion efforts in markets with attractive commerce profiles and trends.

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Pursue strategic acquisitions. We intend to continue pursuing expansion opportunities in existing and new markets, as well as in core and adjacent categories and complementary technology through strategic acquisitions.
Our Products and Services
In our marketplace, we offer products and services to allow consumers to save money and retailers and brands to generate sales.
Products and Services for Consumers
Our product development approach is centered on building products that enable consumers to discover quality digital offers, virtually anytime and anywhere, and redeem them online or in-store. Our products and services for consumers are free of charge and available through our websites and mobile applications.
Websites. We offer our consumers hundreds of thousands of digital offers from tens of thousands of retailers and brands across multiple product categories. Consumers visiting our websites search for and discover digital offers based on retailer name, product, category, digital offer type, popularity, success rate and other characteristics. Once a consumer discovers a relevant online digital offer, the consumer clicks on that digital offer and is typically directed to the website of the respective retailer, where the consumer is able to purchase products and redeem the digital offer. Consumers can redeem these digital offers in-store by simply scanning the barcode at the retailer’s register or by having the sales associate enter the promotional code shown on the consumer’s mobile screen into their point-of-sale system.
Mobile applications. Our mobile applications allow consumers to shop when they want, where they want. Consumers use our mobile applications to discover, store for use later and access the digital offers they want and to redeem them both online and in-store. They can browse top digital offers, popular stores and product category listings. Our mobile applications also allow users to share digital offers with others via email, text message or through social media channels. The RetailMeNot mobile application provides a Just for You feature designed to inform the consumer of the top digital offers available at their favorite stores, an Our Best feature that provides the consumer with the best curated new digital offers of the day, and a Daily Deals feature that displays curated product offerings. In addition, utilizing location-based technology, the RetailMeNot mobile application notifies consumers of savings opportunities when they are shopping near shopping malls and centers by sending consumers alerts for digital offers that can be used in these locations. Once a consumer discovers a relevant online digital offer, the consumer clicks on that digital offer and is typically directed to the website of the respective retailer, where the consumer is able to purchase products and redeem the digital offer. Consumers also can redeem certain of these digital offers in-store on our mobile websites by simply scanning the barcode at the retailer’s register or by having the sales associate enter the promotional code shown on the consumer’s mobile screen into their point-of-sale system.
Email newsletters and alerts. Consumers can subscribe to receive our periodic email newsletters and alerts. Our email newsletters allow consumers to stay informed about featured digital offers, while our alerts notify consumers when digital offers from their preferred retailers become available.
 
Email newsletters: Our newsletters are sent several times a week and typically include the top digital offers for featured retailers. A portion of these newsletters feature digital offers that are targeted to our consumers based on their past activity on our websites, their affinity for certain retailers or certain types of shopping categories and other proprietary data about the user.
Alerts: Our alerts provide consumers with new digital offers for their favorite retailers, as they become available.
Products and Services for Retailers and Brands
We provide retailers and brands with access to a large and engaged consumer audience.
Multichannel access to consumers. We provide retailers and brands with access to new customers through multiple channels online on our websites and mobile applications, by email newsletters and alerts and our social media presence, and in-store by displaying a digital offer on a mobile device or presenting a printed offer. We allow retailers and brands to provide consistent digital offers across these multiple channels.
Advertising. We provide our paid retailers with a variety of advertising opportunities to increase the impact of their digital offer campaigns. Our most common advertising opportunities include prominent placement within the top digital offer listings of our homepage, our category pages, our email newsletter, solo retailer newsletter campaigns and on the landing page of our

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mobile websites and applications. We also offer digital circulars and product showcases, which provide our paid retailers the opportunity to display digital offers with brand imagery through our websites and mobile applications. We are able to assist our retailers in identifying users likely to engage with their digital offers through analysis of the data we collect related to our users’ preferences and shopping habits. We typically charge a flat fee for these advertising opportunities on a campaign basis for a given period of time. Advertising rates may vary depending upon the distribution channel, seasonality, placement prominence, traffic and the length of time a retailer runs an advertisement through our marketplace.
Our Websites, Mobile Applications and Brands
We operate a portfolio of digital offer websites and mobile applications that span multiple geographic locations and languages. We acquired the majority of the websites we operate today and have typically maintained the brand name we acquired in each local market given the brand awareness of each website created prior to our acquisition. Each of these websites and mobile applications provides the same core set of solutions: consumers use these websites and mobile applications at no charge to search for and discover digital offers they can redeem online or in-store with leading retailers and brands.
We use the RetailMeNot brand in the U.S., including RetailMeNot.com, our mobile optimized website and the RetailMeNot mobile applications currently available for free for iPhone and Android, and in Canada, through RetailMeNot.ca. We expect to continue to focus our efforts on building the RetailMeNot brand in the U.S. and Canada.
We acquired the business of VoucherCodes.co.uk. in August 2011, which is our brand in the U.K. The VoucherCodes.co.uk. brand includes the VoucherCodes.co.uk. website and mobile applications currently available for free for iPhone and Android. In May 2012, we re-launched our website Deals.com to serve consumers and retailers in Germany. In November 2015 we launched our website RetailMeNot.de to serve Germany and ceased support for the Deals.com brand.
Also in May 2012, we acquired the businesses of Bons-de-Reduction.com and Poulpeo.com in France. In October 2015, we decided to no longer support the Bons-de-Reduction.com brand. As a result, we have redirected traffic from Bons-de-Reduction.com to Poulpeo.com. The Poulpeo.com brand includes the Poulpeo.com website and mobile application currently available for free for iPhone and Android. As of March 1, 2013, we established operations in the Netherlands through the acquisition of the business of Actiepagina.nl. In June 2013, we launched our website RetailMeNot.ca to serve English-speaking consumers and retailers in Canada. In July 2013, we expanded our presence in France through the acquisition of the business of Ma-Reduc.com. The Ma-Reduc brand includes the Ma-Reduc.com website and mobile application currently available for free for iPhone and Android. In January 2016, we launched our website RetailMeNot.es to serve Spain.
Our primary websites and mobile applications include:
 
 
 
 
 
 
 
 
 
 
Website
  
Mobile Applications
  
Geographic
Location
Served
  
Language
  
Focus
Retailmenot.com
  
iPhone & Android
  
U.S.
  
English
  
Online and In-Store Offers
VoucherCodes.co.uk
  
iPhone & Android
  
U.K.
  
English
  
Online and In-Store Offers
Poulpeo.com
  
iPhone & Android
  
France
  
French
  
Online Offers with Cash Back
Ma-Reduc.com
  
iPhone & Android
  
France
  
French
  
Online Offers
Actiepagina.nl
  
None
  
Netherlands
  
Dutch
  
Online Offers
RetailMeNot.de
  
None
  
Germany
  
German
  
Online Offers
RetailMeNot.ca
  
None
  
Canada
  
English
  
Online Offers
RetailMeNot.es
 
None
 
Spain
 
Spanish
 
Online Offers
Technology and Infrastructure
Product development and innovation are core pillars of our strategy. Our product team works to regularly deliver innovative products and features in an effort to provide the best possible consumer experience and drive sales for retailers and brands. The responsibilities of our product team span the lifecycle of identifying consumer and retailer needs, defining and designing products, testing, developing go-to-market strategies, and measuring the performance of new products and features. The team is focused on enhancing our core solutions, optimizing the user experience for consumers, and building better business results for our paid retailers. We provide our online and mobile solutions using a combination of in-house and third-party technology solutions and products.

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We have developed proprietary systems architecture for use in creating, maintaining and operating our websites and mobile applications. This technology consists of internal development by our staff of designers and engineers and makes use of software acquired or licensed from outside developers and companies. Our systems are designed to serve consumers and our retailers’ operations teams in an automated and scalable fashion. While we use a variety of technologies, the majority of our software systems are written in PHP and Java by engineers employed or contracted by us. Our product development expenses were $51.6 million, $47.9 million and $30.6 million in 2015, 2014 and 2013, respectively. Our software is comprised of four major areas:
 
public facing websites and mobile applications;
content quality management systems;
data management and reporting; and
infrastructure tools.
Our websites and mobile applications are hosted in the U.S., U.K., France, Ireland and the Netherlands using a combination of third-party co-location hosting centers and cloud-based hosting services. Our systems architecture has been designed to manage increases in traffic on our websites and mobile applications through the addition of server and network hardware without making software changes. Our third-party data centers provide our websites, mobile applications and online tools with scalable and redundant Internet connectivity and redundant power and cooling to our hosting environments. We use security methods in an effort to ensure the integrity of our networks and to protect confidential data collected and stored on our servers. For example, we use firewall technology to protect access to our networks and to our servers and databases on which we store confidential data. We have developed and use internal policies and procedures to protect the personal information of our users. We test for unauthorized external access to the network daily using automated services and conduct periodic audits performed by outsourced security consultants.
Competition
The market to attract consumers seeking to save money on purchases online and in-store, and retailers and brands seeking to drive sales and acquire new customers is highly competitive, fragmented and rapidly changing with limited barriers to entry.
Our competition for traffic from consumers seeking to save money on online or in-store purchases includes digital offer websites and mobile applications, cash-back and loyalty websites, retailers, search engines, social networks, comparison shopping websites, newspapers and direct mail campaigns. We believe that our primary competition is from other digital offer websites, including Goodsearch, dealspl.us, bradsdeals, savings.com, Tech Bargains and Coupon Cabin. In addition to such competitors, we are experiencing increasing competition from other businesses that offer digital offers similar to ours as an add-on to their core business. For example, Groupon, Living Social, Coupons.com and Facebook provide digital offers, Google promotes product-listing advertisements adjacent to its search results and Google and PayPal provide digital offers for in-store purchases. Further, with the introduction of cash-back rebates and discounted digital gift cards, we now compete with businesses that provide similar offerings, including ebates and raise.com. While some of our actual and potential competitors enjoy substantial competitive advantages over us, such as superior name recognition, substantially greater financial, technical and other resources and longer history of competing in relevant geographies, we believe that we compete favorably based on our leadership position in digital offers, our strong brand awareness, our broad selection and quality of digital offers from leading retailers and brands, our trusted partnerships with retailers, our network effects and our large community of actively engaged users.
Retailers and brands have a number of marketing options to choose from when deciding how to reach consumers. Our competition for marketing spend includes digital offer sites that offer a pay-for-performance model, search engines and social networks that compete for online advertising spend and television, magazines and newspapers that compete for offline advertising spend. We believe the principal factors that make us appealing in the competition for retailers’ marketing spend include our large and engaged audience of consumers, our multichannel engagement across online, mobile, social and in-store, our trusted marketplace that protects retailers’ brands, and our pay-for-performance model that provides retailers and brands measurable ROI, reporting and analytics.
Intellectual Property
Our intellectual property includes the content of our websites, our registered domain names, our registered and unregistered trademarks and our patent applications. We believe that our intellectual property is an important asset of our business and that our RetailMeNot.com, VoucherCodes.co.uk, Poulpeo.com, Ma-Reduc.com, Actiepagina.nl, Deals.com, RetailMeNot.de, RetailMeNot.ca, RetailMeNot.es and other domain names and our technology infrastructure give us a

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competitive advantage in the digital offer market. We rely on a combination of trademark, copyright and trade secret laws in the U.S. and Europe, as well as contractual provisions, to protect our proprietary technology and our brands. We currently have trademarks registered or pending in the U.S., Europe, Australia, Canada, India, South Korea, Singapore and China for our name and certain words and phrases that we use in our business. We also rely on copyright laws to protect software relating to our websites and our proprietary technologies, although we have not registered for copyright protection to date. We have registered numerous Internet domain names related to our business in order to protect our proprietary interests. As of December 31, 2015, we had three patents issued and 72 patent applications, including six provisional patent applications pending, related to the use and operation of discount websites and related mobile applications as well as the provision and redemption of digital offers. We also enter into confidentiality agreements with our employees and consultants and seek to control access to and distribution of our proprietary information in a commercially prudent manner. In addition, we license third-party technologies that are incorporated into some elements of our solutions.
The efforts we have taken to protect our intellectual property rights may not be sufficient or effective, and, despite these precautions, it may be possible for other parties to copy or otherwise obtain and use the content of our websites without authorization. We may be unable to prevent competitors from acquiring domain names or trademarks that are similar to, infringe upon or diminish the value of our domain names, trademarks, service marks and our other proprietary rights. Failure to protect our proprietary rights adequately could significantly harm our competitive position and operating results.
Employees
As of December 31, 2015, we had 522 employees. We consider our current relationship with our employees to be good. Other than our French employees, none of our employees is represented by a labor union or is a party to a collective bargaining agreement.
Culture
We believe that a critical component of our success has been our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes a focus on execution. We have nurtured this culture since our inception and maintained an environment designed to promote openness, honesty, responsibility, mutual respect and the pursuit of common goals. We believe our culture gives us a competitive advantage in recruiting talent in the highly competitive fields that are critical to our success.
Segments
We have one operating and reporting segment consisting of various products and services that are all related to our marketplace for digital offers. For a discussion of revenue, net income and total assets, see Part II, Item 8: “Financial Statements” of this Annual Report on 10-K.
Geographic Information
Financial information about geographic areas is set forth in Note 12 of the Notes to Consolidated Financial Statements under Part II, Item 8: “Financial Statements” of this Annual Report on Form 10-K. For a discussion of the risks attendant to foreign operations, see the information in Part 1, Item 1A: “Risk Factors” under the caption “We are subject to international business uncertainties that could adversely affect our operations and operating results.”
Seasonality
Our operating results fluctuate from quarter to quarter as a result of a variety of factors, including seasonal factors and economic cycles that influence consumer purchasing of retail products. Historically, we have experienced the highest number of visits, mobile unique visitors and net revenues in the fourth quarter of the year, which coincides with the winter holiday season in the U.S. and Europe. This seasonality may not be fully evident in our historical business performance because of our significant growth and the timing of our acquisitions. For instance, we have entered new markets through international acquisitions and increased the number of paid retailer and performance marketing network relationships. These changes have contributed to the substantial growth in our net revenues and corresponding increases in our operating costs and expenses to support our growth. Further, net revenues from our advertising and in-store products are even more heavily weighted to the fourth quarter of the year. As net revenues from this part of our business grow as a percentage of overall net revenues, our seasonality may increase.

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Our investments have led to uneven quarterly operating results due to increases in personnel costs, product and technology enhancements and the impact of our acquisitions and other strategic projects. The return on these investments is generally achieved in future periods and, as a result, these investments can adversely impact near term results.
Our business is directly affected by the behavior of consumers. Economic conditions and competitive pressures can impact, both positively and negatively, the types of digital offers featured on our websites and the rates at which consumers use them. Consequently, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

Available Information
Our corporate Internet address is www.retailmenot.com/corp and our investor relations website is located at http://investor.retailmenot.com. We make available free of charge on our investor relations website under the headings “Financials and Filings” and “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with (or furnished to) the SEC. Information contained on our websites is not incorporated by reference into this Annual Report on Form 10-K. In addition, the public may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site, www.sec.gov, that includes filings of and information about issuers that file electronically with the SEC.


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Item 1A. Risk Factors.
Our business, prospects, financial condition or operating results could be materially adversely affected by any of the risks and uncertainties described below, as well as other risks not currently known to us or that are currently considered immaterial. The trading price of our Series 1 common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
Risks Related to Our Business
We are an early-stage company with a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
We began our operations in September 2007 and did not enter the digital offer industry until late 2009. Our limited operating history may make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in rapidly changing industries, including challenges in accurate financial planning and forecasting. You should consider our business and prospects in light of the risks and difficulties we may encounter as an early-stage company.

Traffic to our desktop websites has declined year-over-year and the rate of growth of traffic to our mobile websites is slowing year-over-year. If we are unable to continue to attract visitors to our websites from search engines, then consumer traffic to our websites could decrease, which could negatively impact the number of purchases generated for our retailers through our marketplace, and therefore negatively impact our ability to maintain or grow our net revenues and profitability.
We generate consumer traffic to our websites using various methods, including search engine marketing, or SEM, search engine optimization, or SEO, email campaigns and social media referrals. Our net revenues and profitability are dependent upon our continued ability to use a combination of these methods to generate consumer traffic to our websites in a cost-efficient manner. We have experienced and continue to experience fluctuations in search result rankings for a number of our websites. There can be no assurances that we will be able to grow or maintain current levels of consumer traffic either as a whole or with respect to either our desktop or mobile websites.
Our SEM and SEO techniques have been developed to work with existing search algorithms utilized by the major search engines. Major search engines frequently modify their search algorithms. Changes in these algorithms could cause our websites to receive less favorable placements, which could reduce the number of users who visit our websites. For example, in 2014 and 2015, a major search engine released updates to its search algorithm that impacted the rankings of our websites for certain keywords. In some of those instances, consumer traffic to our websites decreased when compared to traffic levels immediately prior to each of these algorithm updates. As of December 31, 2015, traffic to our websites had not returned to levels immediately prior to a May 2015 algorithm update due, in part, to changes in search result rankings for certain keywords. We may be unable to modify our SEM and SEO strategies in response to any future search algorithm changes made by the major search engines, which could require a change in the strategy we use to generate consumer traffic to our websites. In addition, websites must comply with search engine guidelines and policies. These guidelines and policies are complex and may change at any time. If we fail to follow such guidelines and policies properly, search engines may rank our content lower in search results or could remove our content altogether from their indices. If we fail to understand and comply with these guidelines, our SEO strategy may become unsuccessful.
In some instances, search engines may change their displays or rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. For example, a major search engine currently promotes its product-listing advertisements adjacent to its search results and has increased the number of paid search results on mobile websites for certain keywords reducing visibility of organic search results, each of which could reduce traffic to our websites. Given the large volume of search-driven traffic to our websites and the importance of the placement and display of results of a user’s search, similar actions in the future could have a negative effect on our business and results of operations.
If we are listed less prominently or fail to appear in search result listings for any reason, it is likely that the number of visitors to our websites will decline. Any such decline in consumer traffic to our websites could adversely impact the number of purchases we generate for our retailers, which could in turn adversely affect our online transaction net revenues. For example, after a major search engine released updates to its search algorithm in May 2014 and in the second quarter of 2015, consumer traffic to our websites decreased in some instances when compared to traffic levels immediately prior to each algorithm update, which negatively impacted our online transaction net revenues. We may not be able to replace this traffic with the same volume of visitors or in the same cost-effective manner from other channels, such as SEM, display advertising, e-mail or social media,

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or at all. An attempt to replace this traffic through other channels may require us to increase our sales and marketing expenditures, which would adversely affect our operating results and which additional net revenues may not offset.
Although consumer traffic to our mobile applications is not reliant on search results, growth in mobile device usage may not decrease our overall reliance on search results if mobile users use our mobile websites rather than our mobile applications. In fact, growth in mobile device usage may exacerbate the risks associated with how and where our websites are displayed in search results because mobile device screens are smaller than desktop computer screens and therefore display fewer search results.
Consumers are increasingly using mobile devices to access our content and if we are unsuccessful in expanding the capabilities of our digital offer solutions for our mobile platforms to allow us to generate net revenues as effectively as our desktop platforms, our net revenues could decline.
Web usage and the consumption of digital content are increasingly shifting to mobile platforms such as smartphones and other connected devices. In 2015, visits to our mobile websites represented approximately 41% of the total visits to our websites, and we expect the percentage of visits to our mobile websites to continue to grow. Industry-wide solutions to monetize digital offer content effectively on these platforms are at an early stage of development and the future demand and growth prospects for digital offer content on these mobile platforms are uncertain. Further, the rate at which we monetize digital offer content on our mobile websites and applications is significantly lower than the on our desktop websites.
The growth of our business depends in part on our ability to deliver compelling solutions to consumers and retailers both online and for use in store through these new mobile marketing channels. Our success on mobile platforms will be dependent on our interoperability with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our functionality or give preferential treatment to competitive services could adversely affect usage of our services through mobile devices.
Further, to deliver high quality mobile offerings, it is important that our solutions integrate with a range of other mobile technologies, systems, networks and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks or standards. For example, some retailers today do not recognize affiliate tracking links on their mobile websites or applications, and affiliate tracking links on mobile websites or applications may not function to allow retailers’ sales to be attributed to us. Further, consumers may click on a digital offer displayed on our mobile websites or in our mobile applications, but execute a purchase using that digital offer on a different platform, such as on the retailer’s desktop website or in-store (a circumstance known as cross device switching), which may result in those retailer sales not being attributed to us. As a result, in each such case, we may not receive commission revenues when a consumer executes a purchase on the retailer’s platform after clicking through a digital offer displayed on our mobile websites or in our mobile applications. If retailers fail to recognize affiliate tracking links on their mobile websites or applications, or affiliate tracking links on mobile websites or applications do not function to allow retailers’ sales to be attributed to us and our mobile traffic continues to represent a significant percentage of our consumer traffic, or increases, our business could be harmed and our operating results could be adversely affected.
If we fail to develop mobile applications and mobile websites that effectively address consumer and retailer needs, or if we are not able to implement strategies that allow us to monetize mobile platforms and other emerging platforms, our ability to grow will be constrained, and our business, financial condition and operating results would be adversely affected.
If retailers alter the way they attribute credit to publishers in their performance marketing programs, our net revenues could decline and our operating results could be adversely affected.
Retailers often advertise and market digital offers through performance marketing programs, a type of performance-based marketing in which a retailer rewards one or more publishers such as us for each visitor or customer generated by the publisher’s own marketing efforts. When a consumer executes a purchase on a retailer’s website as a result of a performance marketing program, most performance marketing conversion tracking tools credit the most recent link or ad clicked by the consumer prior to that purchase. This practice is generally known as “last-click attribution.” We generate the vast majority of our net revenues through transactions for which we receive last-click attribution. In recent years, some retailers have sought, and in some cases adopted, alternatives to last-click attribution. These alternatives are primarily “first-click attribution,” which credits the first link or ad clicked by a consumer prior to executing a purchase, or “multichannel attribution,” which applies weighted values to each of a retailer’s advertisements and tracks how each of those advertisements contributed to a purchase. If retailers widely adopt first-click attribution, multichannel attribution or otherwise alter the ways they attribute credit for

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purchases to us, and if we are unable to adapt our business practices to such alterations, our net revenues could decline and our business, financial condition and operating results could be adversely affected.
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results and business may be significantly harmed.
The size of our user base and our users’ level of engagement are important to our success. Our financial performance has and will continue to be significantly determined by our success in adding, retaining, and engaging our users. If consumers do not perceive our products to be useful, we may not be able to attract or retain users or otherwise maintain or increase the frequency of their engagement. There is no guarantee that we will not experience an erosion of our active user base or engagement levels. Any number of factors could potentially negatively affect user retention, growth and engagement, including if:
users increasingly engage with other products or services through which they obtain digital offers;
we fail to introduce new products or services that users find engaging or if we introduce new products or services that are not favorably received;
we are unable to obtain digital offers that consumers find useful, particularly with respect to offers for our in store solution which is still in its early stages and for which a broad source of supply has not been established;
we are unable to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and networks, and that achieve a high level of market acceptance;
we are unable to ensure that users are presented with content that is useful and relevant to them;
users perceive that the quality of digital offers available through our marketplace has decreased;
our mobile applications fail to be prominently featured in iOS and Android application stores; or
there are decreases in user sentiment about the quality or usefulness of our products or offers or concerns related to privacy, security or other factors.
If we are unable to maintain or increase our user base and user engagement, our revenue and financial results may be adversely affected. Any decrease in user retention, growth or engagement could render our marketplace less attractive to retailers and brands, which is likely to have a material and adverse impact on our revenue, business, financial condition and results of operations. If our desktop website traffic continues to decline and if our mobile website traffic growth rate continues to slow, or to decline, we will become increasingly dependent on our ability to maintain or increase levels of user engagement and associated monetization in order to maintain our current revenues or drive revenue growth.
If we are unable to retain our existing retailers, expand our business with existing retailers or attract new retailers and consumers, our net revenues could decline.
Our ability to continue to grow our net revenues will depend in large part on expanding our business with existing retailers and attracting new retailers. The number of our current retailers may not expand materially beyond our existing base and may decline. Even for our largest retailers, the amount they pay us is typically only a small fraction of their overall advertising budget. Retailers may view their spend with us as experimental, particularly with respect to our in-store solution, and may either reduce or terminate their spend with us if they determine a superior alternative for generating sales. In addition, retailers may determine that distributing digital offers through our platform results in undesirably broad distribution of their digital offers or otherwise does not provide a compelling value proposition. Some retailers have demanded that we remove digital offers relating to their products or services from our marketplace, and we anticipate that some retailers will do so in the future. Retailers have in some cases reduced, and may reduce in the future, the commission rates they pay to us for sales we facilitate. If we are unable to negotiate favorable terms with current or new retailers in the future, including the commission rates they pay us, our operating results will be adversely affected.
The sales process for our in-store solution varies from that of our online business. Specifically, the sales cycle for retailers considering adopting the solution for the first time tends to be longer on a comparative basis than with respect to offers on other portions of our marketplace. That sales process can involve establishing new direct relationships with retailers as they may fund in-store offers from different budgets than those reserved for publishers participating in performance marketing programs with the same retailers. For these and other reasons, it may be comparatively more difficult to expand the number of retailers using the in-store portion of our marketplace.
While we enter into agreements with certain retailers that may be performed over a period of one year or longer, retailers generally do not enter into long-term obligations with us requiring them to use our solutions. Retailers' contracts with us, with few exceptions, are cancelable upon short or no notice and without penalty. We cannot be sure that our retailers will continue to

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use our solutions or that we will be able to replace retailers that do not renew their campaigns with new ones generating comparable revenues.
If we are unable to attract new consumers and maintain or increase consumer traffic to our websites and use of our mobile applications, new retailers may choose not to use, and existing retailers may not continue to use, our solutions for their promotional campaigns, and our volume of new digital offer inventory may suffer as the perceived usefulness of our marketplace declines. If our existing retailers do not continue to use our solutions for their promotional campaigns, or if we are unable to attract and expand the amount of business we do with new retailers, our sales will decrease and our operating results will be adversely affected.
We experience quarterly fluctuations in our operating results due to a number of factors that make our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our business is subject to seasonal fluctuations. Specifically, our net revenues are traditionally strongest in the third and fourth quarters of each year due to increases in holiday shopping. Conversely, our first and second quarter net revenues are typically lower.
Since the majority of our expenses are personnel-related and include salaries and stock-based compensation, benefits and incentive-based compensation plan expenses, we have not experienced significant seasonal fluctuations in the timing of our expenses from period to period other than increases in discretionary advertising and promotional spending during the third and fourth quarter holiday shopping period. We may continue to increase our investment in sales, engineering and product development substantially as we seek to leverage our solution to capitalize on what we see as a growing global opportunity. For the foregoing reasons or other reasons we may not anticipate, historical patterns should not be considered indicative of our future sales activity, expenditure levels or performance.
Factors that may affect our quarterly operating results include the following:
 
the number and quality of the digital offers on our websites and mobile applications;
consumer visits to our websites and use of our mobile applications, and purchases by consumers resulting from those visits or application sessions;
our ability to maintain or increase the commissions and other revenues associated with consumer visits to our mobile websites or use of our mobile applications;
the success and costs of our online advertising and marketing initiatives, including advertising costs for paid search keywords that we deem relevant to our business and advertising costs for driving consumer downloads of our mobile applications;
the levels of compensation that retailers are willing to pay us to attract customers;
the amount that consumers spend when they make purchases using the digital offers we provide;
market acceptance of our current and future solutions, including our ability to retain current retailers, sell additional solutions to existing retailers and to add new retailers to our business in multiple regions around the world;
our ability to achieve performance targets anticipated by us in setting our operating and capital expense budgets;
overall levels of consumer spending;
the budgeting cycles of our retailers;
the cyclical and discretionary nature of marketing spend and any resulting changes in the number and quality of digital offers that retailers choose to offer;
changes in the competitive dynamics of the digital offer industry, including consolidation among competitors, performance marketing networks or customers, and our reputation and brand strength relative to our competitors;
the response of consumers to our digital offer content and our personalization initiatives;
our ability to control costs, including our operating expenses;
network outages, errors in our solutions or security breaches and any associated expenses and collateral effects;
our ability to achieve the growth rate that was anticipated by us in setting our operating and capital expense budgets;
foreign currency exchange rate fluctuations, as our foreign sales and costs are denominated in local currencies;
interest rate fluctuations, as our senior indebtedness carries a variable interest rate;
costs related to acquisitions or licensing of, or investments in, products, services, technologies or other businesses and our ability to integrate and manage any acquisitions successfully;

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our ability to collect amounts billed to retailers directly and through performance networks; and
general economic and political conditions in our domestic and international markets.

As a result of these and other factors, we have a limited ability to forecast the amount of future net revenues and expenses, and our operating results may vary from quarter to quarter and have fallen, and may in the future fall, below our estimates or the expectations of public market analysts and investors. Fluctuations in our quarterly operating results may lead analysts to change their long-term models for valuing our common stock, cause us to face short-term liquidity issues, impact our ability to retain or attract key personnel or cause other unanticipated issues, all of which could cause our stock price to decline. As a result of the potential variations in our quarterly net revenues and operating results, we believe that quarter-to-quarter comparisons of our net revenues and operating results may not be meaningful and the results of any single quarter should not be relied upon as an indication of future performance.
We are highly dependent on performance marketing networks as intermediaries. Factors adversely affecting our relationships with performance marketing networks, or the termination of our relationships with these networks, may adversely affect our ability to attract and retain business and our operating results.
Most of our net revenues come from commissions earned for promoting digital offers on behalf of retailers. Often, the commissions we earn are tracked and paid by performance marketing networks. For 2015, 94.9% of our net revenues came from retailers that pay us through performance marketing networks, primarily Commission Junction and LinkShare. Performance marketing networks provide retailers with affiliate tracking links for attributing revenues to publishers like us and the ability to distribute digital offer content to multiple publishers. We do not have exclusive relationships with performance marketing networks. They do not enter into long-term commitments to us allowing us to use their solutions, and their contracts with us are cancelable upon short or no notice and without penalty.
Our sales could be adversely impacted by industry changes relating to the use of performance marketing networks. For example, if retailers seek to bring the distribution of their digital offer content in-house rather than using a performance marketing network, we would need to develop relationships with more retailers directly, which we might not be able to do and which could increase our sales, marketing and product development expenses. Additionally, we face challenges associated with consumers’ increasing use of mobile devices to complete their online purchases. For example, many retailers currently do not recognize affiliate tracking links on their mobile websites or applications, and tracking mechanisms on mobile websites or applications may not function to allow retailers to properly attribute sales to us. As a result, we may not receive commission revenues when a consumer makes a purchase from their mobile device on a retailer’s mobile website after clicking through a digital offer displayed on one of our websites or mobile applications if the retailer’s mobile monetization mechanisms are not enabled.
Moreover, as a result of dealing primarily with performance marketing networks, we have less of a direct relationship with retailers than would be the case if we dealt directly with retailers. The presence of performance marketing networks as intermediaries between us and retailers creates a challenge to building our own brand awareness and affinity with retailers. Additionally, in the event that our relationship with a performance marketing network were to terminate, our mechanism for receiving payments from the retailers we service through that network would terminate, which could materially and adversely impact our net revenues. Additionally, retailers may fail to pay the performance marketing networks the fees the retailers owe, which is a prerequisite to us receiving our commissions from the networks.
Some performance marketing networks that we work with could be considered our competitors because they also offer some components of our solution, including publishing digital offers, on their own properties. For example, in September 2014, the parent company of LinkShare announced its purchase of ebates.com, a cash-back business with which we compete. LinkShare could elect to terminate its relationship with us or limit our ability to maintain or establish new relationships with retailers participating in its network in order to drive business to its own properties. If a performance marketing network further develops its own properties with digital offer capabilities or limits our access to its network for the purposes of driving revenue to its own properties, our ability to compete effectively could be significantly compromised and our business and operating results could be adversely affected.
The market in which we participate is intensely competitive, and we may not be able to compete successfully.
The market for digital offer solutions is highly competitive, fragmented and rapidly changing. Our competition for traffic from consumers seeking to save money on online or in-store purchases includes digital offer websites and mobile applications, cash-back, loyalty and discounted cash-back websites and mobile applications, retailers, search engines, social networks, comparison shopping websites, newspapers and direct mail campaigns. Our competition for retailer marketing spend includes

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digital offer websites and mobile applications, search engines and social networks that compete for online advertising spend and television, magazines and newspapers that compete for offline advertising spend. 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 profitability. We also expect competition in e-commerce generally, and digital offer solutions in particular, to continue to increase because there are no significant barriers to entry. A substantial number of digital offer websites and mobile applications, including those that attempt to replicate all or a portion of our business model, have emerged globally. In addition to such competitors, we are experiencing increasing competition from other businesses that provide digital offers similar to ours as an add-on to their core business. For example, Groupon, Living Social, Coupons.com and Facebook now provide digital offers, and Google and PayPal are now providing digital offers for in-store purchases. We also expect to compete against other websites and mobile applications that serve niche markets and interests and credit card issuers providing offers based on the user of a particular credit card at certain retailers and restaurants. In addition, we compete with traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide coupons and discounts on products and services.
Our success depends on the breadth, depth, quality and reliability of our digital offer selection, as well as our continued innovation and ability to provide features that make our marketplace useful and appealing to consumers. If we are unable to develop quality features that consumers want to use, then consumers may become dissatisfied with our marketplace and elect to use the offerings of one of our competitors, which could adversely affect our operating results.
Certain of our larger actual or potential competitors may have the resources to significantly change the nature of the digital offer industry to their advantage, which could materially disadvantage us. For example, a major search engine now displays product-listing advertisements above the organic search results returned by its search engine in response to user searches and has increased the number of paid search results on mobile websites for certain keywords reducing visibility of organic search results, each of which may reduce the amount of traffic to our websites. Additionally, potential competitors such as PayPal, Yahoo!, Bing and Facebook have widely adopted industry platforms which they could leverage to distribute digital offers that could be disadvantageous to our competitive position.
Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, be able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive consumer bases and deeper relationships, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies, develop deeper retailer relationships or offer services at lower prices. Any of these developments would make it more difficult for us to sell our solutions and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expense or the loss of market share.
In the traditional coupon landscape, our primary competitors for advertising spend include publishers of printable coupons. Many of these competitors have significant consumer reach, well-developed retailer relationships, and much larger financial resources and longer operating histories than we have.
We also directly and indirectly compete with retailers for consumer traffic. Many retailers market and provide their own digital offers directly to consumers using their own websites, email newsletter and alerts, mobile applications, social media presence and other distribution channels. Our retailers could be more successful than we are at marketing their own digital offers or could decide to terminate their relationship with us because they no longer want to pay us to compete against them.
We may also face competition from companies we do not yet know about. If existing or new companies develop, market or resell competitive digital offer 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.

Our business has grown in scope and complexity in recent periods. If we fail to manage that expansion, our financial performance may suffer.
We have expanded our overall business and product offerings, consumer traffic, paid retailers, employee headcount and operations in recent periods. We increased our total number of full-time employees from 164 as of December 31, 2011 to 522 as of December 31, 2015, after giving effect to our reduction in U.S. headcount by approximately 10% in August 2015. We have also established or acquired operations in other countries. In 2011, we acquired the business of VoucherCodes.co.uk, which is based in the U.K. In 2012, we acquired Bons-de-Reduction.com and Poulpeo.com, which are based in France, and relaunched Deals.com in Germany. In March 2013, we acquired Actiepagina.nl, which is based in the Netherlands. In July 2013, we acquired Ma-Reduc.com, which is based in France. In most of these instances, we previously had no presence in these countries. In October 2015, we decided to no longer support the Bons-de-Reduction.com brand. We have redirected traffic from

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Bons-de-Reduction.com to Poulpeo.com. Finally, we have integrated new types of digital offers on our platforms, including digital rebates and discounted digital gift cards in fiscal 2015. In certain instances, we are the merchant of record for sale of gift cards, which is an evolution of the role we have traditionally played with our users. For various reasons, including those listed above, our business is becoming increasingly complex, especially in light of the increase in content types and our platforms as well as the number of acquisitions we have integrated and may in the future integrate. Our limited operating history, reliance on multiple websites, mobile applications and brands and our expansion have placed, and will continue to place, a significant strain on our managerial, operational, product development, sales and marketing, administrative, financial and other resources.
We expect to continue to increase headcount and to hire more specialized personnel in the future. We will need to continue to hire, train and manage additional qualified website and mobile application developers, software engineers, sales staff, and product development specialists in order to improve and maintain our product offerings and technology to drive and properly manage our growth. If our new hires perform poorly, 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.
Further, to accommodate our expected expansion we must add new hardware and software and improve and maintain our technology, systems and network infrastructure. Failure to effectively upgrade our technology or network infrastructure to support our expected increases in mobile traffic volume and mobile application usage could result in unanticipated system disruptions, slow response times or poor experiences for consumers. To manage the expected expansion of our operations and personnel and to support financial reporting requirements as a public company, we continue to improve our transaction processing and reporting, operational and financial systems, procedures and controls. These improvements will be particularly challenging if we acquire new operations with different back-end systems. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage any growth and increased complexity successfully and hire additional qualified personnel in an efficient manner, our business, financial conditions and operating results could be adversely affected.
If online commerce does not continue to grow, or contracts, our business may suffer.
The business of selling goods and services over the Internet and via mobile applications, and the use of digital offers in those transactions, is dynamic and relatively new. Concerns about fraud, privacy and other challenges may discourage additional consumers from adopting the Internet and mobile applications as a medium of commerce. Acquiring new customers for our marketplace and increasing consumer traffic may become more difficult and costly than it has been in the past, particularly in markets where our marketplace has been available for some time. In order to increase consumer traffic to our websites and increase use of our mobile applications, we must appeal to consumers who historically have used traditional means of commerce to purchase goods and services and may prefer alternatives to our websites and mobile applications, such as the retailer’s own website or mobile application. In addition, consumers may not be accustomed to using one of our mobile applications to access digital offers that can be used by the consumer while in a retail store or restaurant. If these consumers prove to be less active than consumers who are already providing traffic to our websites or using our mobile applications, or we are unable to gain efficiencies in our operating costs, including our cost of increasing consumer traffic to our websites or increasing the number of mobile application sessions, our business could be adversely impacted. Furthermore, to the extent that weak economic conditions cause consumer spending to decline or cause our customers and potential customers to freeze or reduce their marketing budgets, particularly in the online retail market, demand for our solutions may be negatively affected.
If we are not able to maintain a positive perception of the content available through our marketplace and maintain and enhance our RetailMeNot brand and the brands associated with each of our other websites and mobile applications, our reputation and business may suffer.
A decrease in the quality of the digital offers available through our marketplace could harm our reputation and damage our ability to attract and retain consumers and retailers, which could adversely affect our business. Additionally, maintaining and enhancing our RetailMeNot brand and the brands of each of our other websites and mobile applications is critical to our ability to attract new retailers and consumers to our marketplace, generate net revenues and successfully introduce new solutions. We may not be able to successfully build our RetailMeNot brand in the U.S. or the E.U. without losing some or all of the value associated with, or decreasing the effectiveness of, our other brands. We expect that the promotion of all our brands will require us to make substantial investments and as our market becomes more competitive, these branding initiatives may become increasingly difficult and expensive. The successful promotion of our brands will depend largely on our marketing and public relations efforts. If we do not successfully maintain and enhance our brands, we could lose consumer traffic, which could, in turn, cause retailers to terminate or reduce the extent of their relationship with us. Our brand promotion activities may not be successful or may not yield net revenues sufficient to offset this cost, which could adversely affect our reputation and business.

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Our business model depends upon digital offer inventory that we do not own or otherwise generally control, and the failure to maintain sufficient inventory or quality of the digital offers available on our websites may adversely affect our perceived value by consumers and therefore retailers.
Our success depends on our ability to provide consumers with the digital offers they seek. A substantial majority of our revenues come from arrangements in which we are paid by retailers to promote their digital offers. Additionally, as much as one-third of the digital offers on our websites are submitted by users. Therefore, we do not own or control the inventory of content upon which our business depends. Because a large number of our digital offers are submitted by users, our efforts to ensure the quality and reliability of those digital offers are critical to our success. From time to time consumers submit complaints that our digital offers are invalid or expired. If our algorithms and automated processes for validating and sorting user-submitted digital offers are ineffective, or if our representatives responsible for manual review and curation of user-submitted digital offers are unable to effectively select and sort the digital offers that are reliable and most appealing to our users, we may be unable meet the needs of consumers and our operating results may be adversely affected.
Retailers have a variety of channels through which to promote their products and services. If these retailers elect to promote their offers and discounts through other channels, offer less compelling offers or discounts or not to promote offers or discounts at all, or if our competitors are willing to accept lower commissions than we are to promote these digital offers, our ability to obtain content may be impeded and our business, financial condition and operating results will be adversely affected. Similarly, if users do not contribute digital offers to our websites, or if they contribute digital offers that are not attractive or reliable, the digital offer inventory in our marketplace may decrease or become less valuable to consumers. If we cannot maintain sufficient digital offer inventory in our marketplace, consumers may perceive our marketplace as less relevant, consumer traffic to our websites and use of our mobile applications would decline and, as a result, our business, financial condition and operating results would be adversely affected.
If Texas or any other jurisdiction in which we are resident implements regulations that impose sales tax on certain e-commerce or m-commerce transactions, our net revenues could decline and our business, financial condition and operating results will be adversely affected.
In 2008, New York implemented regulations that require retailers to collect and remit sales taxes on sales made to residents of New York if the publisher that facilitated that sale is a New York resident. In 2011, California passed similar regulations, and several other states have enacted or proposed similar regulations, although some of the regulations proposed by these other states have not passed. In addition, New Jersey, a state in which we have operations, passed similar regulations on July 1, 2014. The requirement to collect and remit sales tax in New Jersey has not had a material impact on our results of operations to date. However, in the future, paid retailers in our marketplace that do not currently have sales tax nexus in New Jersey or in any other state that passes or has passed similar regulations and in which we have operations, employees or contractors in the future, may significantly alter the manner in which they pay us, cease paying us for sales we facilitate for that retailer in that state or cease using our marketplace, each of which could adversely impact our operating results. Further, if Texas were to pass similar regulations, we believe a substantial number of the paid retailers in our marketplace would cease paying us for sales we facilitate for that retailer in Texas, significantly alter the manner in which they pay us or cease using our marketplace. This would decrease our sales and our business, financial condition and operating results would be adversely affected.
Our failure or the failure of third-party service providers to protect our platform and network against security breaches, or otherwise protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.
We deliver digital offers via our websites, mobile applications, email newsletter and alerts and social media presence, and we collect and maintain data about consumers, including personally identifiable information, as well as other confidential or proprietary information. We also sell gift cards and provide cash-back rebates to users. Our security measures may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our platform or that we or our third-party service providers otherwise maintain. Breaches of our security measures or those of our third-party service providers could result in unauthorized access to our platform or other systems; unauthorized access to and misappropriation of consumer information, including consumers’ personally identifiable information, or other confidential or proprietary information of ours or third parties; viruses, worms, spyware or other malware being served from our platform; deletion or modification of content, or the display of unauthorized content, on our websites or our mobile applications; or a denial of service or other interruption in our operations. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our size and scale, our geographic footprint and international presence, our use of open source software and technologies, the outsourcing of some of our business

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operations and continued threats of cyber-attacks. Although cybersecurity and the development and enhancement of controls, processes and practices designed to protect our and our third party providers’ systems, computers, software, data and networks from attack, damage or unauthorized access are a priority for us, this may not successfully protect our respective systems against all vulnerabilities, including technologies developed to bypass our security measures. In addition, outside parties may attempt to fraudulently induce employees, users or retailers to disclose sensitive information in order to gain access to our or our third party providers’ secure systems and networks.
Because techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we and they may be unable to anticipate these attacks or to implement adequate preventative measures. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any actual or perceived breach of our security could damage our reputation and brand, expose us to a risk of loss or litigation and possible liability, require us to expend significant capital, technical and other resources to alleviate problems caused by such breaches and deter consumers and retailers from using our marketplace, which would harm our business, financial condition and operating results.
Interruptions or delays in service from third-party data center hosting facilities and other third parties could impair the delivery of our solutions and harm our business.
We operate our business using third-party data center hosting facilities located in California, Oregon, Virginia, the U.K., France, Ireland and the Netherlands. All of our data gathering and analytics are conducted on, and the content we deliver is processed through, servers in these facilities. We also rely on bandwidth providers, Internet service providers and mobile networks to deliver content. Any damage to, or failure of, the systems of our third-party providers could result in interruptions to our service.
Despite precautions taken at our third-party data centers, these facilities may be vulnerable to damage or interruption from break-ins, computer viruses, denial-of-service attacks, acts of terrorism, vandalism or sabotage, power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes and similar events. The occurrence of any of these events, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in loss of data, lengthy interruptions in the availability of our services and harm to our reputation and brand. While we have disaster recovery arrangements in place, they have not been tested under actual disasters or similar events.
Additionally, our third-party data center facility agreements are of limited duration, and our third-party data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If for any reason we are unable to renew our agreements with these facilities on commercially reasonable terms or if our arrangement with one or more of our data centers is terminated, we could experience additional expense in arranging for new facilities and support, and we may experience delays in the provisioning of our solutions until an agreement with another data center facility can be arranged. This shift to alternate facilities could take more than 24 hours depending on the nature of the event, which could cause significant interruptions in the delivery of our solutions and adversely affect our business and reputation. In addition, the failure of these facilities to meet our capacity requirements could result in interruptions in the availability or functionality of our solutions or impede our ability to scale our operations.
Furthermore, we depend on continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our bandwidth providers for any reason or if their services are disrupted, we could experience disruption in our services or we could be required to retain the services of a replacement bandwidth provider, which could increase our operating costs and harm our business and reputation.
Any errors, defects, disruptions or other performance problems with our solutions could harm our reputation and may damage our retailers’ businesses. Interruptions in our solutions could cause retailers to terminate their contracts with us, which would likely reduce our net revenues and harm our business, operating results and financial condition.
An increase in the return rate of paid retailers’ products or a change in the categories of products retailers choose to promote using digital offers could reduce our net revenues.
The commission revenues we receive from paid retailers are in part a function of the amount consumers purchase from paid retailers net of product returns. We do not have control over the categories or quality of products or services that our retailers deliver, nor do we have control over the digital offers they provide us. As a result, we rely on our historical experience for our estimate of returns. If paid retailers’ actual levels of returns are greater than the level of returns we estimate or if paid retailers elect to use digital offer content to promote products and services with a higher return rate than what we have

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experienced historically, our net revenues could decline. Because some categories of products tend to experience higher return rates than others, a shift in the types of goods consumers purchase using our solutions could lead to an increase in returns and our net revenues could decline. Additionally, return rates in foreign countries in which we operate are currently higher than return rates in the U.S. If we continue to expand our operations in countries with high return rates, our operating results may be negatively affected.
If our management team or other key employees do not remain with us in the future, our business, operating results and financial condition could be adversely affected.
We have been successful in attracting a knowledgeable and talented management team and key operating personnel. Our future success depends in large part on our ability to attract and retain these employees. Our senior management team’s in-depth knowledge of and deep relationships with the participants in our industry are extremely valuable to us and there can be no assurance that our senior management team will remain with us in the future, or that we will successfully recruit and retain qualified replacements for those who have departed or depart in the future.
Our business also requires skilled engineering, marketing, product and sales personnel, who are in high demand and are often subject to competing offers. Competition for qualified employees is intense in our industry, and the loss of even a few qualified employees could harm our operating results and impair our ability to grow. The reduction in U.S. headcount effected in August 2015 could not only make it difficult to retain other remaining employees, but also could make it difficult to attract additional personnel.
To attract and retain key personnel, we use various measures, including an equity incentive program, an employee stock purchase program and non-equity incentive bonuses. These measures may not be enough to attract and retain the personnel we require to operate our business effectively. For example, we have a number of employees who were granted stock options that have an exercise price per share that is higher than the current fair market value. Those employees may feel they are not sufficiently incentivized to remain at our company. Conversely, we also have a number of employees who were granted stock options that have an exercise price per share that is lower than the current fair market value. If we are successful, these employees may choose to exercise their options and sell the shares, recognizing a substantial gain. As a result, it may be difficult for us to retain such employees. It may also be difficult to retain employees due to the volatility in our stock.
The reduction in U.S. headcount effected in August 2015 resulted in the loss of certain expertise and the reallocation of certain employment responsibilities, all of which could adversely affect operational efficiencies, employee performance and retention. To the extent that we are unable to effectively reallocate employee responsibilities and retain key employees, our strategic goals and our financial results may be adversely affected.
Regulatory, legislative or self-regulatory developments regarding Internet privacy matters could adversely affect our ability to conduct our business.
Consumer and industry groups have expressed concerns about online data collection and use by companies, which has resulted in the release of various industry self-regulatory codes of conduct and best practice guidelines that are binding for member companies and that govern, among other things, the ways in which companies can collect, use and disclose user information, how companies must give notice of these practices and what choices companies must provide to consumers regarding these practices. We are obligated in certain cases to comply with best practices or codes of conduct addressing matters, such as the online tracking of users or devices.
U.S. regulatory agencies have also placed an increased focus on online privacy matters and, in particular, on online advertising activities that utilize cookies, which are small files of non-personalized information placed on an Internet user’s computer, and other online tracking methods. Such regulatory agencies have released, or are expected to release, reports pertaining to these matters. For example, on March 26, 2012, the Federal Trade Commission, or FTC, issued a report on consumer privacy intended to articulate best practices for companies collecting and using consumer data. The report recommends companies adopt several practices that could have an impact on our business, including giving consumers notice and offering them choices about being tracked across other parties’ websites and implementing a persistent “Do Not Track” mechanism to enable consumers to choose whether to allow tracking of their online search and browsing activities, including on mobile devices. Various industry participants have worked to develop and finalize standards relating to a Do Not Track mechanism, and such standards may be implemented and adopted by industry participants at any time. We may be required or otherwise choose to adopt Do Not Track mechanisms, in which case our ability to use our existing tracking technologies and permit their use by performance marketing networks and other third parties could be impaired. This could cause our net revenues to decline and adversely affect our operating results.

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U.S. and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict industry participants’ ability to collect, augment, analyze, use and share anonymous data, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools. A number of bills have been proposed in the U.S. Congress in the past that contained provisions that would have regulated how companies can use cookies and other tracking technologies to collect and use information about consumers. Some of those bills also contained provisions that would have specifically regulated the collection and use of information, particularly geolocation information, from mobile devices.
Additionally, the EU has traditionally imposed more strict obligations under data privacy laws and regulations. Individual EU member countries have had discretion with respect to their interpretation and implementation of EU data privacy laws, resulting in variation of privacy standards from country to country. Legislation and regulation in the EU and some EU member states requires companies to obtain specific types of notice and consent from consumers before using cookies or other tracking technologies. To comply with these requirements, the use of cookies or other similar technologies may require the user’s affirmative, opt-in consent. In October 2015, the European Court of Justice, or ECJ, ruled that the “safe harbor” framework for the transfer of certain personal information from the EU to the U.S. was invalid.  On 2 February 2016, the European Commission announced that it had reached “political agreement” with its U.S. counterparts on a regime to replace the safe harbor framework named the “Privacy Shield”. The detail of the Privacy Shield is still to be finalized. In the meantime, the transfer of personal information from the EU to the U.S. may take place under the Model Clauses approved by the European Commission. Following the ECJ’s safe harbor decision, we have put in place the Model Clauses. There is a risk that the Model Clauses or Privacy Shield may impose additional obligations in respect of the transfer of personal information from the EU to the U.S. that could force us to change our business practices or incur additional costs. Additionally, in January 2012, the European Commission announced significant proposed reforms to its existing data protection legal framework that may result in a greater compliance burden with respect to our operations in Europe. On December 15, 2015, the European Parliament and the Council reached agreement on the EU data protection reform package, concluding trilogue negotiations between the Commission, Parliament and Council. This paves the way for the package to be formally adopted in early 2016 and to enter in force in early 2018. The final text of the package has not yet been published, so its effect on our business is not known. In addition, the ECJ has found that there is a “right to be forgotten,” which means that the user has a right to request his or her personal information be deleted. In deciding this case, the ECJ purported to extend jurisdictional reach over foreign Internet activities. As a result of this decision, significant new restraints may be imposed on the retention of personal data throughout the EU, which could impact the operation and growth of our business in EU.
Other changes in global privacy laws and regulations and self-regulatory regimes may also force us to incur substantial costs or require us to change our business practices. This could compromise our ability to pursue our growth strategies effectively and may adversely affect the demand for our solutions or otherwise harm our business and financial condition. For instance, new privacy laws or regulations or changed interpretations of existing laws or regulations could require performance marketing networks or us to take additional measures to facilitate consumer privacy preferences or to limit or cease altogether the collection, use or disclosure of data. For example, one potential restriction on the use of cookies would allow a website that a consumer has elected to visit to continue to place cookies on the user’s browser without explicit consent, but would require the user’s explicit consent for a third party to place its cookies on the user’s browser. A 2010 FTC staff report also recommends that websites offer consumers a choice about whether the owner of the website can use third parties to track the consumer’s activity for certain purposes. We are dependent on third parties, including performance marketing networks, to place cookies on browsers of users that visit our websites. If in the future we are restricted from allowing cookies, if there is a material increase in the number of users who choose to opt out or block cookies and other tracking technologies, or if performance marketing networks’ cookies or other tracking mechanisms otherwise do not function properly, our ability to generate net revenues would be significantly impaired.
Finally, we may be subject to foreign laws regulating online advertising even in jurisdictions where we do not have any physical presence to the extent a digital media content provider has advertising inventory that we manage or to the extent that we collect and use data from consumers in those jurisdictions. Such laws may vary widely around the world, making it more costly for us to comply with them. Failure to comply may harm our business and our operating results could be adversely affected.
Changes in consumer sentiment or laws, rules or regulations regarding the use of cookies and other tracking technologies, advertising blocking software and other privacy matters could have a material adverse effect on our ability to generate net revenues and could adversely affect our ability to collect proprietary data on consumer shopping behavior.
Consumers may become increasingly resistant to the collection, use and sharing of information online, including information used to deliver advertising and to attribute credit to publishers such as us in performance marketing programs, and take steps to prevent such collection, use and sharing of information. For example, consumer complaints and/or lawsuits

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regarding online advertising or the use of cookies or other tracking technologies in general and our practices specifically could adversely impact our business.
Consumers can currently opt out of the placement or use of most cookies for online advertising purposes by either deleting or disabling cookies on their browsers, visiting websites that allow consumers to place an opt-out cookie on their browsers, which instructs participating entities not to use certain data about consumers’ online activity for the delivery of targeted advertising, or by downloading browser plug-ins and other tools that can be set to: identify cookies and other tracking technologies used on websites; prevent websites from placing third-party cookies and other tracking technologies on the user’s browser; or block the delivery of online advertisements on websites and applications.
Various software tools and applications have been developed that can block advertisements from a user’s screen or allow users to shift the location in which advertising appears on webpages or opt out of display, search and internet-based advertising entirely. In particular, Apple recently updated its mobile operating system to permit these technologies to work in its mobile Safari browser. In addition, changes in device and software features could make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies. In particular, the default settings of consumer devices and software may be set to prevent the placement of cookies unless the user actively elects to allow them. For example, Apple’s Safari browser currently has a default setting under which third-party cookies are not accepted, and users must activate a browser setting to enable cookies to be set. Additionally, Mozilla Corporation announced on February 25, 2013, that its Firefox browser also will not accept third-party cookies by default. On February 22, 2012, the Digital Advertising Alliance announced that its members will work to add browser-based header signals to the set of tools by which consumers can express their preferences not to be tracked online. As discussed above, a 2010 FTC report on consumer privacy calls for the development and implementation of a persistent Do Not Track mechanism that enable consumers to choose whether to allow the tracking of their online search and browsing activities. Various industry participants have worked to develop and finalize standards relating to a Do Not Track mechanism, and such standards may be implemented and adopted by industry participants at any time.
We are dependent on performance marketing networks or in some instances, retailers, to place cookies on browsers of users that visit our websites or to use other tracking mechanisms to allow retailer sales through our marketplace to be attributed to us, and if we are restricted from allowing these or if they do not function in a manner that allows retailer sales through our marketplace to be attributed to us, our ability to generate net revenues would be significantly impaired. In particular, if consumer sentiment regarding privacy issues or the development and deployment of new browser solutions or other Do Not Track mechanisms results in a material increase in the number of users who choose to opt out or block cookies and other tracking technologies or who are otherwise using browsers where they need to, and fail to, configure the browser to accept cookies, or otherwise results in cookies or other tracking technologies not functioning properly, our ability to conduct our business, operating results and financial condition would be adversely affected.
In addition to this change in consumer preferences, if retailers or brands perceive significant negative consumer reaction to targeted online advertising or the tracking of consumers’ online activities, they may determine that such advertising or tracking has the potential to negatively impact their brand. In that case, advertisers may limit or stop the use of our solutions, and our operating results and financial condition would be adversely affected.
Our business practices with respect to privacy, data and consumer protection could give rise to liabilities or reputational harm as a result of governmental regulation, legal obligations or industry standards relating to privacy, data and consumer protection.
Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we collect. In addition, certain laws impose restrictions on communications with persons by email, SMS text messages and other means of delivery. We are also subject to legal obligations concerning privacy, data and consumer protection such as the terms of our privacy policies and our privacy and data-related agreements with third parties. Our contracts with the retailers and performance marketing networks with which we exchange data, for example, govern our respective rights to use such data. We strive to comply with all applicable laws, regulations, self-regulatory requirements and legal obligations relating to privacy, data and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. For example, several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. We cannot assure you that our practices have complied, comply, or will comply fully with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with federal, state or international laws or regulations, including laws and regulations regulating privacy, data, marketing communications or consumer protection, our own privacy policies and practices, or other policies, self-regulatory requirements or legal obligations could result in harm to our reputation, a loss in business, and proceedings or actions against

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us by governmental entities, consumers, retailers or others. Additionally, if third parties we work with violate applicable laws, our policies or other privacy-related obligations, such violations may also put our users’ information at risk and could in turn have an adverse effect on our business. If, for example, third parties cease to provide us with consumer data that assists in our targeted advertising to consumers, due to governmental regulation or other reasons, our business could be negatively impacted.
Government regulation of the Internet, e-commerce and mobile commerce is evolving, and unfavorable changes or failure by us to comply with these laws and regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet, e-commerce and mobile commerce, or m-commerce, in a number of jurisdictions around the world. Existing and future regulations and laws could impede the growth of the Internet, e-commerce, m-commerce or other online services. These regulations and laws may involve taxation, tariffs, privacy and data security, anti-spam, data protection, content, copyrights, distribution, electronic contracts, electronic communications, money laundering, electronic payments and consumer protection. It is not clear how existing laws and regulations governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet as the vast majority of these laws and regulations were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet, e-commerce or m-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet, e-commerce or m-commerce may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot assure you that our practices have complied, comply or will in the future comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business, and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant resources in defense of these proceedings, distract our management, increase our costs of doing business, and cause consumers and retailers to decrease their use of our marketplace, and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of noncompliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our websites and mobile applications or may even attempt to completely block access to our marketplace. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected and we may not be able to maintain or grow our net revenues as anticipated.
As we develop and provide solutions, we may be subject to additional and unexpected regulations, or increased risk of fraud, which could increase our costs or otherwise harm our business.
As we develop and provide solutions that address new market segments, we may become subject to additional laws and regulations, which could create unexpected liabilities for us, cause us to incur additional costs or restrict our operations.
We have begun to introduce new product offerings, which may be subject to regulation by federal, state and local authorities and by authorities in foreign countries. For example, unlike our other solutions, in order to facilitate product offerings such as the sale of gift cards, we, or one or more third party payment processors acting on our behalf, may acquire, store and process consumer credit card data or other personally identifiable information. The processing of such information requires compliance with the Payment Card Industry Data Security Standard, or PCI DSS, which compliance certification we previously obtained. Under the PCI DSS, we are required to maintain internal controls over the use, storage and security of credit card data and other personally identifiable information to help prevent credit card fraud. Failure to comply with this standard or other loss of our PCI DSS compliance could result in breaches of contractual obligations with our payment processors, may subject us to fines, penalties, damages and civil liability and could eventually prevent us from processing or accepting credit cards.
Transactions involving digital rebates, the sale of gift cards, and/or the purchase of gift cards (which we expect to offer in the future), may require us to comply with numerous state, federal and international laws and regulations. We have limited experience operating our business in accordance with these specific laws and regulations. In addition, purchases and sales of gift cards, and particularly the purchase and sale of gift cards acquired from consumers rather than directly or indirectly from the issuing retailer, increase our exposure to various types of fraud committed by third parties or by our own employees. Our failure to accurately anticipate the application of laws and regulations related to digital rebates or gift cards, or other failure to comply, and our failure to anticipate, prevent or discover fraud related to digital rebates or gift cards, could create liability for us, result in adverse publicity or cause us to alter our business practices, any of which could cause our net revenues to decrease, our costs to increase, or our business otherwise to be harmed.

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From time to time, we may be notified of or otherwise become aware of additional laws and regulations that governmental organizations or others may claim should be applicable to our business. Our failure to anticipate the application of these laws and regulations accurately, or other failure to comply, could create liability for us, result in adverse publicity or cause us to alter our business practices, which could cause our net revenues to decrease, our costs to increase or our business otherwise to be harmed.
We may face liability for, and may be subject to claims related to, inaccurate or outdated content provided to us, or content provided to us without permission, which could require us to pay significant damages, may be extremely costly to defend even if decided in our favor and could limit our ability to operate.
The information on our websites and mobile applications that is provided by performance marketing networks and retailers and collected from third parties relates to digital offers from retailers. We are exposed to the risk that some of this content may contain inaccurate or outdated information about retailer products or services or the discounts thereon, or digital offers that are not made available or intended to be made available to all consumers. This could cause consumers and retailers to lose confidence in the information provided on our platform or become dissatisfied with our platform and result in lawsuits being filed against us.
In addition, we currently face and may in the future be exposed to potential liability relating to information that is published or made available through our marketplace, including information generated by us, user-generated content and proprietary information of third parties. This content may expose us to claims related to trademark and copyright infringement and other intellectual property rights, rights of privacy, defamation, fraud, negligence, breach of contract, tortious interference, unfairness, deceptiveness, false or misleading advertising, personal injury torts, noncompliance with state or federal laws relating to digital offers or other theories based on the nature and content of the information. The laws relating to the liability of service providers for activities of their users is currently unsettled both within the U.S. and internationally, although risks related to these types of lawsuits may be enhanced in certain jurisdictions outside the U.S. where our protection from liability for third-party actions is more unclear and where we may be less protected under local laws than we are in the U.S.
Such claims or lawsuits currently and could in the future divert the time and attention of management and technical personnel away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. Such potential claims and lawsuits could also result in significant damages if we are found liable. The scope and amount of our insurance may not adequately protect us against these types of damages. Additionally, as a result of such claims, we have elected and may in the future elect or be compelled to remove valuable content from our websites or mobile applications, which could decrease the usefulness of our platform for consumers and result in less traffic to our websites and less usage of our mobile applications. If any of these events occur, our business and financial results could be adversely affected.
Our business could suffer if the jurisdictions in which we operate change the way in which they regulate user-generated content.
Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices related to user-generated content and that requires changes to these practices or the design of our platform or solutions. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims against third parties, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement and other theories based on the nature and content of the materials searched, the ads posted or the content provided by users. If immunities currently afforded to websites that publish user-generated content are limited, we may be compelled to remove content from our platform that we would otherwise publish or restrict the types of businesses that we can promote digital offer content for, among other changes. Such changes in law could increase our operating costs and make it more difficult for consumers to use our platform, resulting in less consumer traffic and net revenues, and our business and operating results could suffer.
The growth of e-commerce and m-commerce in the U.S. could suffer if the federal government implements new regulations that obligate retailers, or permit states to obligate retailers, to collect sales taxes from consumers on certain e-commerce or m-commerce transactions, which would adversely affect our growth.
Legislation introduced in the U.S. Senate as S. 698 in March 2015 would grant states the authority to require out-of-state retailers to collect and remit sales taxes. The adoption of remote sales tax collection legislation would result in the imposition of sales taxes and additional costs associated with complex sales tax collection, remittance and audit compliance requirements on many of our retailers, which would make selling online or through mobile applications less attractive for these retailers.

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Additionally, the introduction of new or increased taxes applicable to online transactions could make online purchases less attractive to consumers relative to in-store retail purchases. These changes could substantially impair the growth of e-commerce and m-commerce in the U.S., and could diminish our opportunity to derive financial benefit from our activities in the U.S.
We may be sued by third parties for infringement or other violation of their intellectual property or proprietary rights.
Internet, advertising and e-commerce companies frequently are subject to litigation based on allegations of infringement, misappropriation, dilution or other violations of intellectual property rights. Some Internet, advertising, e-commerce companies and m-commerce companies, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us.
Third parties have asserted, and may in the future assert, that we have infringed, misappropriated or otherwise violated their intellectual property rights.
For instance, the use of our technology to provide our solutions could be challenged by claims that such use infringes, dilutes, misappropriates or otherwise violates the intellectual property rights of a third party. In addition, we currently face and may in the future be exposed to claims that content published or made available through our websites or mobile applications violates third-party intellectual property rights. For example, retailers and other third parties frequently have complained that their trademarks, copyrights or other intellectual property are being used on our websites or mobile applications without their permission and in violation of their rights or in violation of laws or regulations.
As we face increasing competition and as a public company, the possibility of intellectual property rights claims against us grows. Such claims and litigation may involve patent holding companies or other adverse intellectual property rights holders who have no relevant product revenue, and therefore our own pending patents and other intellectual property rights may provide little or no deterrence to these rights holders in bringing intellectual property rights claims against us. There may be intellectual property rights held by others, including issued or pending patents and trademarks, that cover significant aspects of our technologies, content, branding or business methods, and we cannot assure that we are not infringing or violating, and have not violated or infringed, any third-party intellectual property rights or that we will not be held to have done so or be accused of doing so in the future.
Any claim that we have violated intellectual property or other proprietary rights of third parties, with or without merit, and whether or not it results in litigation, is settled out of court or is determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of management and technical personnel from our business. Furthermore, an adverse outcome of a dispute may result in an injunction and could require us to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property rights. Any settlement or adverse judgment resulting from such a claim could require us to enter into a licensing agreement to continue using the technology, content or other intellectual property that is the subject of the claim; restrict or prohibit our use of such technology, content or other intellectual property; require us to expend significant resources to redesign our technology or solutions; and require us to indemnify third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. There also can be no assurance that we would be able to develop or license suitable alternative technology, content or other intellectual property to permit us to continue offering the affected technology, content or services to our customers. Any of these events could harm our business, operating results and financial condition.
Failure to protect or enforce our intellectual property rights could harm our business and results of operations.
We pursue the registration of our patentable technology, domain names, trademarks and service marks in the U.S. and in certain jurisdictions abroad. We also strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our technology or intellectual property rights. Those agreements that we do execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property rights may not prevent the misappropriation or disclosure of our proprietary information nor deter independent development of similar technology or intellectual property by others.
Effective trade secret, patent, copyright, trademark and domain name protection is expensive to obtain, develop and maintain, both in terms of initial and ongoing registration or prosecution requirements and expenses and the costs of defending

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our rights. We are seeking to protect our patentable technology, trademarks and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through additional patent filings that could be expensive and time-consuming. We have three patents issued and 72 pending patent applications, including six provisional applications. We do not know whether any of our pending patent applications will result in the issuance of additional patents or whether the examination process will require us to narrow our claims or we may otherwise be unable to obtain patent protection for the technology covered in our pending patent applications. Our patents, trademarks and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Moreover, any issued patents may not provide us with a competitive advantage and, as with any technology, competitors may be able to develop similar or superior technologies to our own, now or in the future.
Additionally, in the U.S., several significant developments in the intellectual property industry, including the continued effect of the Leahy-Smith America Invents Act of 2011 (including several new means by which challenges of patents may be effected) and the Supreme Court holding in the Alice Corp. v. CLS Bank International case, which called into question the patentability of computer software, may negatively impact our ability to obtain patents or enforce patent rights. For example, the claims of our patent applications may fail to issue, or if they do issue, may subsequently be challenged or invalidated, based on these developments.
Monitoring unauthorized use of the content on our websites and mobile applications, and our other intellectual property and technology, is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not have been and may not be adequate to prevent their misappropriation or misuse. Third parties from time to time copy content or other intellectual property or technology from our solutions without authorization and seek to use it for their own benefit. We generally seek to address such unauthorized copying or use, but we have not always been successful in stopping all unauthorized use of our content or other intellectual property or technology, and may not be successful in doing so in the future. Further, we may not have been and may not be able to detect unauthorized use of our technology or intellectual property, or to take appropriate steps to enforce our intellectual property rights. Our competitors may also independently develop similar technology. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solutions or technology are hosted or available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Further, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. The laws in the U.S. and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property rights could result in competitors offering solutions that incorporate our most technologically advanced features, which could reduce demand for our solutions.
We may find it necessary or appropriate to initiate claims or litigation to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of intellectual property rights claimed by others. Litigation is inherently uncertain and any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property, our business and operating results may be harmed.
We may be unable to continue the use of our domain names, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks.
We have registered domain names for our websites that we use in our business. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our solutions under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the U.S. and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of management’s attention.
ICANN (the Internet Corporation for Assigned Names and Numbers), the international authority over top-level domain names, has been increasing the number of generic top-level domains, or “TLDs.” This may allow companies or individuals to create new web addresses that appear to the right of the “dot” in a web address, beyond such long-standing TLDs as “.com,” “.org” and “.gov.” ICANN may also add additional TLDs in the future. As a result, we may be unable to maintain exclusive rights to all potentially relevant or desirable domain names in the United States or in other countries in which we operate, which may harm our business. Furthermore, attempts may be made by third parties to register our trademarks as new TLDs or

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as domain names within new TLDs, and we may be required to enforce our rights against such registration attempts, which could result in significant expense and the diversion of management’s attention.
The consumer traffic to our websites and mobile applications may decline and our business may suffer if other companies copy information from our platform and publish or aggregate it with other information for their own benefit.
From time to time, other companies copy information or content from our platform, through website scraping, robots or other means, and publish or aggregate it with other information for their own benefit. When third parties copy, publish or aggregate content from our platform, it makes them more competitive, and decreases the likelihood that consumers will visit our websites or use our mobile applications to search and discover the information they seek, which could negatively affect our business, results of operations and financial condition. We may not be able to detect such third-party conduct in a timely manner or at all and, even if we are able to identify these situations, we may not be able to prevent them and have not always been able to prevent them in the past. In some cases, particularly in the case of websites operating outside of the U.S., our available remedies may be inadequate to protect us against such practices. In addition, we may be required to expend significant financial or other resources to successfully enforce our rights.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, violation of law and other losses.
Our agreements with retailers, performance marketing networks and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, sales taxes due as a result of our activities within a state or other liabilities relating to or arising from our products, services or other contractual obligations, including noncompliance with any laws, regulations, self-regulatory requirements or other legal obligations relating to privacy, data protection and consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business. Any such proceeding or action, and any related indemnification obligation, could hurt our reputation, force us to incur significant expenses in defense of these proceedings, distract our management, increase our costs of doing business and cause consumers and retailers to decrease their use of our marketplace, and may result in substantial monetary liability. The term of these indemnity provisions generally survives termination or expiration of the applicable agreement.
We rely on information technology to operate our business and maintain competitiveness, and any failure to adapt to technological developments or industry trends could harm our business.
We depend on the use of information technologies and systems. As our operations grow, we must continuously improve and upgrade our systems and infrastructure while maintaining or improving the reliability and integrity of our infrastructure. Our future success also depends on our ability to adapt our systems and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our solutions in response to competitive services and product offerings. The emergence of alternative platforms such as smartphones and tablets and the emergence of niche competitors who may be able to optimize products, services or strategies for such platforms will require new investment in technology. New developments in other areas, such as cloud computing, could also make it easier for competition to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner.
Some of our solutions contain open source software, which may pose particular risks to our proprietary software and solutions.
We use open source software in our solutions and will use open source software in the future. Some licenses governing our use of open source software contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in certain manners. Although we monitor our use of open source software, we cannot assure you that all open source software is reviewed prior to use in our solutions, that our developers have not incorporated open source software into our solutions, or that they will not do so in the future. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our solutions. In addition, the terms of open source software licenses may require us to provide software that we develop using such open source software to others on unfavorable license terms. As a result of our current or future use of open source software, we may face claims or litigation, be required to

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release our proprietary source code, pay damages for breach of contract, re-engineer our solutions, discontinue making our solutions available in the event re-engineering cannot be accomplished on a timely basis or take other remedial action. Any such re-engineering or other remedial efforts could require significant additional research and development resources, and we may not be able to successfully complete any such re-engineering or other remedial efforts. Further, in addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and operating results.
We are subject to international business uncertainties that could adversely affect our operations and operating results.
Our net revenues from operations outside the U.S. comprised 21.4% of our net revenues in 2015. As of February 1, 2016, we operate websites marketing to residents of the U.K., France, Spain, the Netherlands, Germany and Canada. We currently have operations in the U.K., France and the Netherlands. We intend to maintain or expand our existing operations in or to these countries and may establish a presence in additional countries to grow our international sales. Operating in foreign countries requires significant resources and management attention, and we have limited experience entering new geographic markets. In addition, the varying commercial and Internet infrastructure in other countries may make it difficult for us to replicate our business model. In many countries, we compete with local companies that have more experience in their respective markets than we do, and we may not benefit from first-to-market advantages. To achieve widespread acceptance in new countries and markets, we must continue to tailor our solutions and business model to the unique circumstances of such countries and markets, which can be difficult and costly. Failure to adapt practices and models effectively to each country into which we expand could slow our international growth. We cannot assure you that our international efforts will be successful. International sales and operations may be subject to risks such as:
 
competition with local or foreign companies operating in or entering the same markets;
the suitability, compatibility and successful implementation of the shared information technology infrastructure that we are developing to power our marketplace in certain of our international markets;
the cost and resources required to localize our solutions, while maintaining retailer and consumer satisfaction such that our marketplace will continue to attract high quality retailers;
difficulties in staffing and managing foreign operations due to distance, time zones, language and cultural differences;
higher product return rates;
burdens of complying with a wide variety of laws and regulations, including regulation of digital offer terms, Internet services, privacy and data protection, bulk emailing and anti-competition regulations, which may limit or prevent us from offering of our solutions in some jurisdictions or limit our ability to enforce contractual obligations;
exposure to markets where there is a concentration of retailers and those retailers individually or collectively exercise their market power to negotiate lower commissions or cease to monetize with us entirely;
adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash;
political and economic instability;
terrorist activities and natural disasters;
differing employment practices and laws and labor disruptions;
technology compatibility;
credit risk and higher levels of payment fraud;
increased financial accounting and reporting burdens and complexities and difficulties in implementing and maintaining adequate internal controls;
slower adoption of the Internet as an advertising, broadcast and commerce medium in certain of those markets as compared to the U.S.;
lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;
preference for local vendors; and
different or lesser degrees of intellectual property protection.
In addition, the U.S. has in the past proposed, and is currently evaluating, changes to the corporate tax structure that would include taxation of offshore earnings of U.S. businesses. If this were to occur, our effective tax rates would likely increase. Further, we are subject to U.S. and foreign legislation, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act. While we maintain high standards of ethical conduct, our policies, training and monitoring of compliance with applicable

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anti-corruption laws are at an early stage of development. If any of our employees or agents were to violate these laws in the conduct of our business, we could be subject to substantial penalties and our reputation could be impaired.
These factors could have an adverse effect on our net revenues from advertisers located outside the U.S. and, consequently, on our business and operating results.
We may be unable to identify suitable candidates for strategic transactions, effectively integrate newly acquired businesses or technology, or achieve expected operating results from acquisitions or other strategic transactions.
Part of our growth strategy is to increase our net revenues and improve our operating results through the acquisition of, or entry into other strategic transactions such as joint ventures or partnerships with, similar or complementary businesses. There can be no assurance that suitable candidates for acquisitions or other strategic transactions will be identified or, if suitable candidates are identified, that strategic transactions can be completed on acceptable terms, if at all.
Since our inception, we have completed numerous acquisitions and other strategic transactions such as joint ventures or partnerships, and we may continue to enter into strategic transactions in the future. Our success will depend in part on our ability to identify, negotiate, and complete strategic transactions and integrate acquired businesses or technology and, if necessary, satisfactory debt or equity financing to fund those transactions. As is the case with our current debt facility, if we finance a strategic transaction with debt financing, we will incur interest expense and may have to comply with financing covenants or secure the debt obligations with our assets. Mergers and acquisitions and other strategic transactions are inherently risky, and any transactions we complete may not be successful. Any strategic transactions we undertake in the future would involve numerous risks, any of which could have a material adverse effect on our business and the market price of our common stock, including the following:
 
use of cash resources and incurrence of debt and contingent liabilities in funding strategic transactions, which may limit our operational flexibility and other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness;
expected and unexpected costs incurred in identifying and pursuing strategic transactions and performing due diligence regarding potential strategic transactions that may or may not be successful;
failure of the acquired company to achieve anticipated consumer traffic, revenue, earnings, cash flows or other desired technological goals;
our responsibility for the liabilities of the businesses we acquire, including the assumption of liabilities that were not disclosed to us or that exceed our estimates;
difficulties in integrating and managing the combined operations, technologies and solutions;
failure to identify all of the problems, liabilities or other shortcomings or challenges of a counterparty to a strategic transaction or an acquired company, including issues related to intellectual property, solution quality or architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues;
diversion of management’s attention or other resources from our existing business;
inability to maintain the key business relationships and the reputations of the businesses we acquire;
difficulties in assigning or transferring technology or intellectual property licensed by acquired companies from third parties to us or our subsidiaries;
uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions;
our dependence on unfamiliar retailers or performance marketing networks of the companies we acquire;
insufficient incremental revenue to offset our increased expenses associated with strategic transactions;
our inability to maintain internal standards, controls, procedures and policies;
challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with U.S. generally accepted accounting principles;
impairment of goodwill or other intangible assets such as trademarks or other intellectual property arising from acquisitions;
amortization of expenses related to acquired intangible assets and other adverse accounting consequences;
potential loss of key employees from the companies we acquire, as has occurred after previous acquisitions;
dilution of our stockholders’ ownership interests if we finance all or a portion of the purchase price of any strategic transactions by issuing equity; and

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litigation or other claims from the counterparty to the strategic transaction, including claims from former stockholders, claims related to intellectual property infringement or other matters or various commercial or tort claims.
Further, we rely heavily on the representations and warranties provided to us by counterparties to strategic transactions, including the sellers of acquired companies and assets, including as they relate to creation of, ownership of and rights in intellectual property, existence of open source code, existence of encumbrances and operating restrictions and compliance with laws and contractual requirements. If any of these representations and warranties is inaccurate or breached, such inaccuracy or breach could result in costly litigation and assessment of liability for which there may not be adequate recourse against such sellers, in part due to contractual time limitations and limitations of liability.
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 Series 1 common stock.
As of January 1, 2016, we have an aggregate of 83,775,625 shares of Series 1 common stock authorized but unissued and not reserved for issuance under our stock option plans or otherwise. We may issue all of these shares without any action or approval by our stockholders, subject to certain limitations of the NASDAQ Global Select Market. We may require additional capital from equity or debt financing in the future in order to take advantage of strategic opportunities, or to support our existing business. 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, including our ability to issue or repurchase equity, develop new or enhanced existing products, complete acquisitions or otherwise take advantage of business opportunities. If we raise additional funds or finance acquisitions through further issuances of equity, convertible debt securities or other securities convertible into equity, you and our other stockholders could suffer significant dilution in your percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our Series 1 common stock. 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.
Our current management team has a limited history of working together and may not be able to execute our business plan.
Certain members of our senior management team, including our Chief Financial Officer, General Counsel, Chief Marketing Officer for North America, Senior Vice President of Corporate Development, Senior Vice President of Product and Senior Vice President, Administration, have only recently joined our management team or assumed their roles. As such, our current management team has worked together for only a limited period of time and has a limited track record of executing our business plan as a team. Accordingly, it is difficult to predict whether our management team, individually and collectively, will be effective in operating our business.
If we are unable to retain our sales representatives, or attract replacement sales representatives, our ability to increase our net revenues could be negatively impacted. 
Our ability to expand our business will depend, in part, on our ability to retain our current sales representatives and properly incentivize them to obtain new retailer, restaurant and brand relationships. If a significant number of our sales representatives were to leave us or join our competitors, our net revenues could be negatively impacted. In certain circumstances, we have entered into agreements with our sales representatives that contain non-compete provisions to mitigate this risk, but we may need to litigate to enforce our rights under these agreements, which could be time-consuming, expensive and ineffective. A significant increase in the turnover rate among our sales representatives could also increase our recruiting costs and decrease our operating efficiency, which could lead to a decline in our net revenues and profitability.
Competition for qualified sales representatives can be intense, and we may be unable to hire additional team members when we need them or at all. Any difficulties we experience in attracting additional sales representatives could have a negative impact on our ability to expand our retailer base, increase net revenues and continue our growth.
Our business relies in part on email and other messaging, and any technical, legal or other restrictions on the sending of emails or messages or an inability to timely deliver such communications could harm our business.
Our business is in part dependent upon email and other messaging. We provide emails and mobile alerts and other messages to consumers informing them of the offers on our websites and mobile applications, and these communications help generate a portion of our net revenues. Because of the importance of email and other messaging services to our business, if we are unable to successfully deliver emails or other messages to consumers, if there are legal restrictions on delivering these

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messages to consumers, or if consumers do not open our emails or messages, our net revenues and profitability could be adversely affected. Changes in how webmail applications organize and prioritize email may result in our emails being delivered in a less prominent location in a consumer’s inbox or viewed as “spam” by consumers and may reduce the likelihood of that consumer opening our emails. Actions by third parties to block, impose restrictions on or charge for the delivery of emails or other messages could also harm our business. From time to time, Internet service providers or other third parties may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to consumers. Changes in the laws or regulations that limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications would also adversely impact our business. We also rely on social networking messaging services to send communications. Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our customers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by consumers could harm our business.
We rely on third-party services for the delivery of emails and other messages, and delays or errors in the delivery of such emails or other messaging we send have occurred and may in the future occur and be beyond our control, which could result in damage to our reputation or harm our revenues, business, financial condition and operating results. If we were unable to use our current email service or other messaging services, alternate services are available; however, we believe our results could be impacted for some period if we transition to a new provider. Any disruption or restriction on the distribution of our emails or other messages, termination or disruption of our relationship with our messaging service providers, including our third-party services that delivers our emails and other messages, or any increase in our costs associated with our email and other messaging activities could harm our business.
We may have exposure to greater than anticipated tax liabilities.

We are subject to taxes in the United States (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, by our inability to achieve the intended tax consequences of our recent corporate restructuring of our European operations, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.

We also are subject audits by both U.S. federal and state and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies, within the U.S. or internationally, could adversely impact our financial condition and results of operations.
The current administration has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed new legislation. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the U.S. are repatriated to the U.S., as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings, as well as cash and cash equivalent balances we currently maintain outside of the U.S. We are also subject to the taxation regimes of numerous foreign jurisdictions where our subsidiaries are organized or operate. Due to economic and political conditions, tax rates and policies in the U.S. or internationally may be subject to significant change. For example, effective April 1, 2015, the UK enacted a new taxing regime known as the diverted profits tax, which aims to counteract arrangements by corporate multinationals that result in the erosion

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of the UK tax base and that could increase our effective tax rate in that jurisdiction. As we expand our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and, in turn, adversely impact our financial condition and results of operations.
We rely on performance marketing networks and retailers to determine the amount payable to us accurately. If their reports are inaccurate or delayed, our operating results could be harmed and we could experience fluctuations in our performance.
Our performance marketing networks and retailers typically pay us on a monthly basis based upon sales generated from digital offers. We rely on our performance marketing networks and retailers to report accurately and in a timely manner the amount of commission revenues earned by us. We calculate our net revenues, prepare our financial reports, projections and budgets and direct our advertising, marketing and other operating efforts based in part on reports we receive from our performance marketing networks and retailers. It is difficult for us to determine independently whether our performance marketing networks or retailers are reporting all revenue data due to us. We have occasionally experienced instances of incomplete or delayed reports from our performance marketing networks and retailers, and we generally do not have the contractual right to audit our performance marketing networks or retailers. We have also experienced instances where payments may not be made by retailers through performance marketing networks, which can increase the likelihood that accounts receivable will be written off as uncollectible. To the extent that our performance marketing networks or retailers fail to report accurately the amount of net revenues payable to us in a timely manner or at all, we will not recognize and collect net revenues to which we are entitled, which could harm our operating results. If we are allowed to audit a performance marketing network or retailer and do so, or if we otherwise dispute the accuracy of a revenue report a performance marketing network or retailer has delivered to us, our recognition of net revenues to which we may ultimately be entitled could be delayed. Conversely, if a performance marketing network or retailer delivers a report overstating the amount of net revenues earned by us in one period and attempts to reverse the overpayment in a subsequent period, whether by seeking a refund from us or reducing a future payment due to us, our recognition of revenue could be overstated. Any such delay or overstatement in our revenue recognition could harm our business and operating results.
We obtain the revenue reporting information from our performance marketing networks using a variety of methods, including the use of file transfer protocol file feeds, various application programming interfaces provided by the performance marketing networks and manual downloads of data from the performance marketing networks’ web portals. The use of any of these methods, in isolation, inherently subjects us to lower levels of internal control over revenue data, which could result in a misstatement of our net revenues. We have automated the process for collecting a substantial portion of the data necessary to record our net revenues. We currently augment this automated data collection process with manual validation of data from certain of the performance marketing networks’ web portals to help minimize risk of error. However, our validation methods may evolve over time. We cannot guarantee our ability to detect all errors in the data obtained automatically, which could affect our ability to accurately report our net revenues.
If we are unable to comply with all covenants of our current and future debt arrangements, and if our lenders fail to waive any violation of those covenants by us, we could be subject to substantial penalties, which would impair our ability to operate and adversely affect our operating results.
We currently have a term debt facility that provides us with cash, which we use to fund our operations and which requires us to comply with a number of restrictive covenants. We may enter into other debt arrangements in the future, which may contain similar or additional restrictive covenants. We are currently subject to covenants related to minimum trailing twelve-month EBITDA levels, a total debt to EBITDA ratio, a senior secured debt to EBITDA ratio, and a fixed charge coverage ratio (each as more fully described in our second amended and restated revolving credit and term loan agreement), and the defense of our intellectual and other property, among others. We may become subject to additional covenants in connection with future debt arrangements. If we are unable to comply with one or more covenants applicable to us and our lenders are unwilling to waive our noncompliance, our lenders may have the right to terminate their commitments to lend to us, cause all amounts outstanding to become due and payable immediately, sell certain of our assets which are collateral for our obligations upon the satisfaction of certain conditions and take other measures which may impair our operations. If funds under our loan arrangements become unavailable or if we are forced unexpectedly to repay amounts outstanding under our loan arrangements, our assets and cash flow may be insufficient to make such repayments or may leave us with insufficient funds to continue our operations as planned and would have a material adverse effect on our business.
If we cannot maintain our corporate culture, we could lose the innovation, teamwork and focus that contribute to our business.
We believe that a critical component of our success has been our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes focus on execution. We have invested and continue to invest

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substantial time, energy and resources in building a highly collaborative team that works together effectively in an environment designed to promote openness, honesty, mutual respect and the pursuit of common goals. As we continue to develop the infrastructure of a public company, and particularly in light of the reduction in U.S. headcount that occurred in August 2015, we may find it difficult to maintain these valuable aspects of our corporate culture and to attract competent personnel who are willing to embrace our culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain personnel, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.
We are subject to currency exchange risk in connection with our international business operations and are exposed to interest rate risk.
Cash inflows and outflows in our international operations are typically denominated in currencies other than the U.S. dollar, which is our functional currency for financial reporting purposes. For 2015, 2014 and 2013 approximately 21.4%, 21.8% and 20.6%, respectively, of our net revenues were denominated in such foreign currencies. In addition, certain intercompany indebtedness between us and a foreign subsidiary, which uses the Euro as its functional currency, is dollar denominated. Our reliance on and exposure to foreign currencies subjects our financial results to fluctuations in currency exchange rates and changes in the proportion of our net revenues and expenses attributable to each of our foreign locations. For example, we recognized a foreign exchange loss of $0.4 million, a foreign exchange loss of $0.9 million and a foreign exchange gain of $0.7 million in 2015, 2014 and 2013, respectively. In addition, we expect our exposure to fluctuations in foreign exchange rates to increase as we expand our business in existing and new international markets and when the exchange rates strengthen or weaken against the U.S. dollar. We began entering into hedging arrangements related to our intercompany indebtedness in December 2014, and we expect to continue to enter into hedging arrangements in the future in order to manage our exposure to foreign currency fluctuations, but such activity may not completely eliminate fluctuations in our operating results. Foreign currency exchange rate fluctuations have adversely impacted our profitability and may continue to do so in the future.
In addition, we face exposure to fluctuations in interest rates for amounts outstanding under our credit facility, which may increase our borrowing costs, adversely impacting our profitability.
We may be required to record a significant charge to earnings if our goodwill or amortizable intangible assets become impaired.
We are required under GAAP to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. The events and circumstances we consider include the business climate, legal factors, operating performance indicators and competition. In 2015, we recorded a charge against earnings for impairment of $2.3 million of our amortizable intangible assets and in the future we may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined. This could adversely impact our results of operations.

Risks Related to Ownership of Our Common Stock
Our stock price is highly volatile.
The trading price of our common stock has been, and is likely to continue to be, highly volatile. Since shares of our common stock were sold in our initial public offering in July 2013 at a price of $21.00 per share, the reported high and low sales prices of our Series 1 common stock has ranged from $8.22 to $48.73 per share through December 31, 2015. The trading price of our stock has been and is likely to continue to be subject to wide fluctuations in response to various factors, including the risk factors described in this section and elsewhere in this Annual Report on Form 10-K, and other factors beyond our control. Factors affecting the trading price of our common stock include:
 
variations in our actual or projected operating results or the operating results of similar companies;
periodic changes to search engine algorithms that lead to actual or perceived decreases in traffic to our websites;
announcements of technological innovations, new services or service enhancements and strategic alliances or agreements by us or by our competitors;
marketing and advertising initiatives by us or our competitors;

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the gain or loss of retailer relationships;
threatened or actual litigation;
major changes in our management;
recruitment or departure of key personnel;
changes in the estimates of our operating results or changes in recommendations by any securities analysts that follow our Series 1 common stock;
market conditions in our industry, the industries of our customers and the economy as a whole;
the overall performance of the equity markets;
sales of shares of our Series 1 common stock by existing stockholders, including our directors and executive officers and their affiliates;
the concentration of ownership of outstanding shares of our Series 1 common stock;
our share repurchase program;
volatility in our stock price, which may lead to higher stock-based compensation expense under applicable accounting standards;
reaction to our press releases or other public announcements and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
raising additional capital from any equity or debt financing in the future; and
adoption or modification of regulations, policies, procedures or programs applicable to our business
In addition, the stock market in general and the market for e-commerce companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may harm the market price of our Series 1 common stock regardless of our actual operating performance. Each of these factors, among others, could adversely affect your investment in our Series 1 common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention.
Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
As of December 31, 2015 we had 51,091,393 shares of common stock outstanding. Shares beneficially owned by our affiliates and employees are subject to volume and other restrictions under Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act, various vesting agreements, our insider trading policy and any applicable 10b5-1 trading plan.
In addition, we have registered 15,608,683 shares of Series 1 common stock that we have issued and may issue under our equity plans (3,030,269 shares of which were issued and outstanding as of December 31, 2015), and intend to register an additional 2,554,568 shares of Series 1 common stock that were added to our equity plans in January 2016 by virtue of those plans’ evergreen provisions. These shares can be freely sold in the public market upon issuance, subject in some cases to volume and other restrictions under Rules 144 and 701 under the Securities Act, and various vesting agreements. In addition, some of our employees, including some of our named executive officers, have entered into 10b5-1 trading plans regarding sales of shares of our Series 1 common stock. If any of 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.
As of January 31, 2016, holders of approximately 14.7% of our common stock were entitled to rights with respect to the registration of these shares under the Securities Act. If we register their shares of common stock, these stockholders could sell those shares in the public market without being subject to the volume and other restrictions of Rule 144 and Rule 701.
Our responsibilities as a public company may cause us to incur significant costs, divert management’s attention and affect our ability to attract and retain qualified board members and executives.

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We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Public Company Accounting Oversight Board and the NASDAQ Global Select Market. Compliance with these public company requirements has made some activities more time-consuming. It has also increased our legal and financial compliance costs and demand on our systems and resources. For example, we have created new board committees and adopted new internal controls and disclosure controls and procedures. In addition, we have incurred and will continue to incur incremental expenses associated with our SEC reporting requirements. Furthermore, if we identify any issues in complying with those requirements (for example, if we or our auditors identify a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase our costs. It also may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
In addition, changing laws, regulations and standards relating to public disclosure and corporate governance are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to our disclosures and to our governance practices. We have invested, and intend to continue to invest, resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention away from activities that generate revenue and help grow our business.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We recently completed the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting. During 2015, we had a change in our internal control over financial reporting that occurred as a result of our implementation of a new enterprise resource planning, or ERP, system that materially affected our internal control over financial reporting. If we are not able to maintain or document proper and effective internal control over financial reporting, or encounter difficulties in their implementation, it may cause us to be unable to report our financial information on an accurate and timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences. Furthermore, our independent registered public accounting firm would not be able to certify as to the effectiveness of our internal control over financial reporting. Any such failure could harm our operating results, harm our ability to operate our business, and reduce the trading price of our stock.
We cannot guarantee that we will repurchase additional shares of our common stock pursuant to our ongoing share repurchase program or that our share repurchase program will enhance long-term stockholder value. Share repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves.
In February 2015, our board of directors authorized a share repurchase program. Under the program, we were initially authorized to repurchase shares of Series 1 common stock for an aggregate purchase price not to exceed $100 million. In February 2016, our board of directors authorized an additional $50 million under the repurchase program, bringing the total amount of the program up to $150 million. The repurchase program is authorized through February 2017. During 2015, we repurchased 4,323,000 shares of our Series 1 common stock at an aggregate purchase price of $52.8 million.
Although the Board has authorized the share repurchase program, the share repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of our Series 1 common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our Series 1 common stock pursuant to our share repurchase program could affect the market price of our Series 1 common stock or increase its volatility. For example, the existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program has increased our level of long-term debt and reduced our cash reserves, and those reserves may be reduced further in the future, which may impact our

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ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that any share repurchases will enhance stockholder value because the market price of our Series 1 common stock has declined, and may in the future decline, below the levels at which we repurchase shares of stock. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.
If securities or industry analysts do not continue to publish research or publish unfavorable or misleading research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes unfavorable or misleading 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, we could lose visibility in the market for our stock and demand for our stock could decrease, which could cause our stock price or trading volume to decline.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our Series 1 common stock.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the stockholder becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:
 
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against 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 the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;
prevent stockholders from calling special meetings; and
prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our Series 1 common stock appreciates.
We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. Any payment of future dividends will be at the discretion of our board of directors, subject to compliance with certain covenants contained in our credit facility, which limit our ability to pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our Series 1 common stock appreciates and you sell your shares at a profit.

Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive offices are located in Austin, Texas, where we lease approximately 99,955 square feet of office space under a lease that expires in February, 2024. We also lease office space in Hoboken, New Jersey; London, England; Paris, France; Vannes, France; and Amsterdam, the Netherlands. Our primary data centers are located in California, Oregon and Virginia. We believe our current and planned office facilities and data center space will be adequate for our needs for the foreseeable future.

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For additional information regarding obligations under operating leases, see Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements” of this Annual Report on Form 10-K.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation related to claims arising from the ordinary course of our business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us.
Item 4. Mine Safety Disclosures.
Not applicable.

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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Series 1 common stock has been listed on the NASDAQ Global Select Market under the symbol “SALE” since July 19, 2013. Prior to that date, there was no public trading market for our Series 1 common stock. Our Series 1 common stock priced at $21.00 per share in our initial public offering on July 18, 2013. The following table sets forth for the periods indicated the high and low intra-day sale prices per share of our Series 1 common stock as reported on the NASDAQ Global Select Market: 
 
 
Low
 
High
Year Ended December 31, 2015
 
 
 
 
Fourth Quarter
 
$
7.98

 
$
11.46

Third Quarter
 
$
7.66

 
$
18.03

Second Quarter
 
$
17.17

 
$
21.68

First Quarter
 
$
13.55

 
$
18.84

 
 
 
Low
 
High
Year Ended December 31, 2014
 
 
 
 
Fourth Quarter
 
$
13.29

 
$
21.50

Third Quarter
 
$
16.13

 
$
26.99

Second Quarter
 
$
22.45

 
$
35.74

First Quarter
 
$
28.01

 
$
48.73

On January 31, 2016, the last reported sale price of our Series 1 common stock on the NASDAQ Global Select Market was $9.10 per share, and there were 16 holders of record of our Series 1 common stock. The actual number of holders of Series 1 common stock is greater than these numbers of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and nominees. The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. Neither Delaware law nor our amended and restated certificate of incorporation requires our board of directors to declare dividends on our common stock. Any future determination to declare cash dividends on our common stock will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. We do not anticipate paying cash dividends on our common stock for the foreseeable future.
Equity Compensation Plan Information
Information regarding the securities authorized for issuance under our equity compensation plans will be included in our Proxy Statement relating to our 2016 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2015, and is incorporated herein by reference.





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Issuer Purchases of Equity Securities (1)
Our Series 1 common stock repurchase activity during the three months ended December 31, 2015 was as follows:
 
Period
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
 
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Plans
or Programs
 
 
(in thousands, except average price per share)
October 1 – 31, 2015
 

 
$

 

 
$
61,234

November 1 – 30, 2015
 
1,508

 
9.31

 
1,508

 
47,192

December 1 – 31, 2015
 

 

 

 
47,192

Total
 
1,508

 
$
9.31

 
1,508

 
$
47,192

 
(1)
On February 5, 2015, our board of directors authorized a program to repurchase up to $100 million worth of our Series 1 common stock over a period of up to 24 months. The repurchase program was publicly announced on February 10, 2015. As of December 31, 2015, $52.8 million of the $100 million has been utilized. In February 2016, our board of directors authorized the repurchase of an additional $50 million worth of shares of our Series 1 common stock, increasing the total authorized amount under our share repurchase program implemented in February 2015 to $150 million. The share repurchase program is authorized through February 2017. Our share repurchase program does not obligate us to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.















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Performance Graph
Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the Russell 2000® Index and the S&P North American Technology Internet Index during the period commencing on July 19, 2013, the initial trading day of our Series 1 common stock, and ending on December 31, 2015. The graph assumes a $100 investment at the beginning of the period in our Series 1 common stock, the stocks represented in the Russell 2000® Index and the stocks represented in the S&P North American Technology Internet Index, and reinvestment of any dividends. The S&P North American Technology Internet Index is a modified-capitalization weighted index of stocks representing the Internet industry, including Internet content and access providers, Internet software and services companies and e-commerce companies. Historical stock price performance should not be relied upon as an indication of future stock price performance.



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Item 6. Selected Financial Data.
The tables on the following pages set forth the consolidated financial and operating data as of and for the periods indicated. The consolidated statements of operations data presented below for the years ended December 31, 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 have been derived from the audited consolidated financial statements that are included in Part II, Item 8: “Financial Statements.” The consolidated statements of operations data presented below for the years ended December 31, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013, 2012 and 2011 are derived from audited consolidated financial statements that are not included in this report.
We acquired the businesses of RetailMeNot.com in November 2010, VoucherCodes.co.uk in August 2011, Bons-de-Reduction.com and Poulpeo.com in May 2012, Actiepagina.nl in March 2013, Ma-Reduc.com in July 2013 and YSL Ventures in October 2013. The consolidated statements of operations, balance sheets and statements of cash flows include the results of businesses acquired from the effective date of the acquisition for accounting purposes.
The following information should be read in conjunction with our consolidated financial statements and related notes, the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other information included elsewhere in this filing. Our historical results are not necessarily indicative of our future results.
 

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Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands, except per share amounts)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
249,115

 
$
264,683

 
$
209,836

 
$
144,685

 
$
80,402

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
19,904

 
18,617

 
13,049

 
9,113

 
3,980

Product development
 
51,580

 
47,882

 
30,566

 
14,481

 
4,388

Sales and marketing
 
99,380

 
90,062

 
70,303

 
40,672

 
15,341

General and administrative
 
39,813

 
42,343

 
28,583

 
15,758

 
6,883

Amortization of purchased intangible assets
 
10,664

 
12,243

 
12,081

 
13,158

 
11,296

Other operating expenses
 
4,616

 
4,065

 
2,525

 
6,006

 
35

Total costs and expenses
 
225,957

 
215,212

 
157,107

 
99,188

 
41,923

Income from operations
 
23,158

 
49,471

 
52,729

 
45,497

 
38,479

Other income (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(1,988
)
 
(1,981
)
 
(2,980
)
 
(3,221
)
 
(7,784
)
Fair value change of common stock warrant
 

 

 

 

 
(2,103
)
Other income (expense), net
 
(315
)
 
(1,102
)
 
672

 
77

 
(129
)
Income before income taxes
 
20,855

 
46,388

 
50,421

 
42,353

 
28,463

Provision for income taxes
 
(9,007
)
 
(19,423
)
 
(18,891
)
 
(16,360
)
 
(11,502
)
Net income
 
$
11,848

 
$
26,965

 
$
31,530

 
$
25,993

 
$
16,961

Preferred stock dividends on participating preferred stock
 

 

 
(19,928
)
 
(24,577
)
 
(64,715
)
Total undistributed earnings (loss)
 
11,848

 
26,965

 
11,602

 
1,416

 
(47,754
)
Undistributed earnings allocated to participating preferred stock
 

 

 
(5,998
)
 
(1,390
)
 

Net income (loss) attributable to common stockholders
 
$
11,848

 
$
26,965

 
$
5,604

 
$
26

 
$
(47,754
)
Net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.22

 
$
0.50

 
$
0.24

 
$
0.03

 
$
(64.19
)
Diluted
 
$
0.22

 
$
0.49

 
$
0.23

 
$
0.03

 
$
(64.19
)
Weighted-average number of common shares used in computing net income per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
53,076

 
53,792

 
23,074

 
841

 
744

Diluted
 
54,099

 
55,311

 
25,742

 
2,277

 
744


 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
259,769

 
$
244,482

 
$
165,881

 
$
97,142

 
$
88,234

Working capital
 
299,976

 
286,253

 
194

 
98

 
78,631

Total assets
 
607,216

 
599,104

 
512

 
371

 
347,326

Total liabilities
 
115,827

 
94,349

 
81

 
63

 
74,817

Redeemable convertible preferred stock
 

 

 

 
349

 
321,450

Total stockholders' equity (deficit)
 
491,389

 
504,755

 
431

 
(41
)
 
(48,941
)
 

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Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands, except net revenues per visit)
Operating Metrics(1):
 
 
 
 
 
 
 
 
 
 
Visits:
 
 
 
 
 
 
 
 
 
 
Desktop visits
 
420,485

 
499,549

 
459,805

 
414,830

 
349,992

Mobile visits
 
297,871

 
197,582

 
100,627

 
49,410

 

Total visits
 
718,356

 
697,131

 
560,432

 
464,240

 
349,992

Online transaction net revenues per visit:
 
 
 
 
 
 
 
 
 
 
Desktop online transaction net revenues per visit
 
$
0.41

 
$
0.44

 
$
0.42

 
$
0.33

 
$
0.22

Mobile online transaction net revenues per visit
 
$
0.08

 
$
0.08

 
$
0.06

 
$
0.04

 
$

Total online transaction net revenues per visit
 
$
0.28

 
$
0.34

 
$
0.35

 
$
0.30

 
$
0.22

Mobile unique visitors(2)
 
23,194

 
21,224

 
11,913

 

 

Other Financial Data(1):
 
 
 
 
 
 
 
 
 
 
Online transaction net revenues:
 
 
 
 
 
 
 
 
 
 
Desktop online transaction net revenues
 
$
173,922

 
$
219,593

 
$
190,861

 
$
137,428

 
$
75,929

Mobile online transaction net revenues
 
24,406

 
15,686

 
6,010

 
1,746

 

Total online transaction net revenues
 
198,328

 
235,279

 
196,871

 
139,174

 
75,929

Advertising and in-store net revenues
 
50,787

 
29,404

 
12,965

 
5,511

 
4,473

Net revenues
 
249,115

 
264,683

 
209,836

 
144,685

 
80,402

Adjusted EBITDA
 
71,890

 
93,900

 
81,320

 
70,373

 
51,895

 
(1)
See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics” on page 48 for a description of these operating metrics and other financial data.
(2)
We present mobile unique visitors as the average monthly mobile unique visitors for the last three months of the period. Amounts for 2012 and 2011 were not meaningful.
The following table presents a reconciliation of adjusted EBITDA to net income for each of the periods indicated:
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Reconciliation of Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
Net income
 
$
11,848

 
$
26,965

 
$
31,530

 
$
25,993

 
$
16,961

Depreciation and amortization expense
 
17,131

 
15,746

 
14,112

 
14,192

 
11,556

Stock-based compensation expense
 
26,894

 
24,518

 
10,507

 
4,048

 
471

Third party acquisition-related costs
 
91

 
100

 
1,447

 
630

 
1,354

Other operating expenses
 
4,616

 
4,065

 
2,525

 
6,006

 
35

Interest expense, net
 
1,988

 
1,981

 
2,980

 
3,221

 
7,784

Fair value change of common stock warrant
 

 

 

 

 
2,103

Other (income) expense, net
 
315

 
1,102

 
(672
)
 
(77
)
 
129

Provision for income taxes
 
9,007

 
19,423

 
18,891

 
16,360

 
11,502

Adjusted EBITDA
 
$
71,890

 
$
93,900

 
$
81,320

 
$
70,373

 
$
51,895







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The following tables present depreciation and stock-based compensation expense as included in the various lines of our consolidated statements of operations:
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Depreciation Expense:
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
523

 
$
456

 
$
299

 
$
99

 
$
62

Product development
 
3,504

 
1,491

 
818

 
380

 
74

Sales and marketing
 
1,354

 
1,025

 
603

 
382

 
84

General and administrative
 
1,086

 
531

 
311

 
173

 
40

Total depreciation expense
 
$
6,467

 
$
3,503

 
$
2,031

 
$
1,034

 
$
260

 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Stock-Based Compensation Expense:
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
2,211

 
$
1,848

 
$
704

 
$
157

 
$
23

Product development
 
8,667

 
7,289

 
2,419

 
1,144

 
164

Sales and marketing
 
6,254

 
5,547

 
2,398

 
993

 
113

General and administrative
 
9,762

 
9,834

 
4,986

 
1,754

 
171

Total stock-based compensation expense
 
$
26,894

 
$
24,518

 
$
10,507

 
$
4,048

 
$
471

Non-GAAP Financial Measures
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this filing adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation above of adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this filing because it is a key measure used by our management and board of directors to understand and evaluate our operating performance for the following reasons:
 
our management uses adjusted EBITDA in conjunction with GAAP financial measures as part of our assessment of our business and in communications with our board of directors concerning our financial performance;
our management and board of directors use adjusted EBITDA in establishing budgets, operational goals and as an element in determining executive compensation;
adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations that could otherwise be masked by the effect of the expenses that we exclude in this non-GAAP financial measure and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results;
securities analysts use a measure similar to our adjusted EBITDA as a supplemental measure to evaluate the overall operating performance and comparison of companies, and we include adjusted EBITDA in our investor and analyst presentations; and
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.

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:
 

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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 excludes stock-based compensation expense which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and is an important part of our employees’ compensation;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Risk Factors.”
We operate a leading digital savings destination connecting consumers with retailers, restaurants and brands, both online and in-store. In the year ended December 31, 2015, our marketplace featured digital offers from over 70,000 retailers and brands, and we had contracts with more than 12,000 retailers. According to our internal data compiled using Google Analytics, we had approximately 718 million total visits to our desktop and mobile websites. During the three months ended December 31, 2015, we averaged approximately 23.2 million mobile unique visitors per month.
We derive the substantial majority of our net revenues from retailers, restaurants or brands that pay us directly or through third-party performance marketing networks. A retailer is a merchant that sells goods or services directly to consumers. A paid retailer is a retailer, restaurant or brand that has contracted to pay us a commission for sales which we influence using digital offers made available in our marketplace and/or a retailer, restaurant or brand that we have a contract with to pay us to promote their digital offers or provide advertising in our marketplace. In some instances, the paid retailer itself provides affiliate tracking links for attribution of online sales using digital offers made available in our marketplace and pays us directly. However, in most cases, paid retailers contract with performance marketing networks to provide affiliate tracking links for attribution of online sales using digital offers made available in our marketplace. These paid retailers then pay the commissions we earn to the performance marketing network, which in turn pays those commissions to us. In general, our contracts with performance marketing networks govern our use of affiliate tracking links made available to us by the performance marketing network and the remittance of any commissions payable to us from paid retailers utilizing the performance marketing network. The performance marketing network with which a paid retailer contracts to provide affiliate tracking links provides us with the paid retailer’s contract terms, which must be accepted by us and the paid retailer, and which further govern our use of affiliate tracking links for such paid retailer and payment of commissions to us. Our contracts are generally short term, meaning that they can be canceled by any of the contracting parties on 30 days’ notice or less.
In 2015, the substantial majority of our net revenues were derived from commissions earned when consumers made purchases using digital offers featured on our websites and mobile applications. We expect that a majority of our net revenues in the future will continue to be derived from these commissions. Commission rates are determined through negotiations with retailers based on a variety of factors, including the level of exposure to consumers in our marketplace, the quality and volume of sales realized from consumers using digital offers from our marketplace and the category of products purchased using digital offers. We sell our solutions to retailers, restaurants and brands through a direct sales force.
During 2015 we generated net revenues of $249.1 million, a decrease of 5.9% from $264.7 million in 2014. Net income for 2015 was $11.8 million, a 56.1% decrease from $27.0 million in 2014. Adjusted EBITDA for 2015 was $71.9 million, a 23.4% decrease from $93.9 million in 2014. See Part II, Item 6: “Selected Financial Data,” page 43, for further discussion of adjusted EBITDA, our use of this measure, the limitations of this measure as an analytical tool, and the reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
In August 2015, we announced a plan to reduce operating expenses in order to realign our cost structure with our current strategic plan. As part of this expense reduction, we reduced U.S. headcount by approximately 10%. We incurred approximately $1.2 million in severance costs associated with the targeted employee reductions, which were included in the results of our operations for 2015.
We were formed in 2007 and began our operations as a marketplace for digital offers in November 2009 with the acquisitions of the businesses of Deals2Buy.com, Coupon7.com, Couponshare.com and CheapStingyBargains.com. In November 2010, we acquired the business of RetailMeNot.com. In August 2011, we acquired the business of VoucherCodes.co.uk, expanding our operations into the U.K. In April 2012, we acquired the businesses of Bons-de-Reduction.com and Poulpeo.com, expanding our operations into France. In March 2013, we acquired the business of Actiepagina.nl, expanding our operations into the Netherlands. In July 2013, we acquired the business of Ma-Reduc.com, expanding our existing operations in France. In October 2013, we acquired the business and associated offer validation technology of YSL Ventures, Inc., which operated under the name Zendeals. Our net revenues for 2013 include the revenues of Actiepagina.nl, Ma-Reduc.com and YSL Ventures, Inc. for the period from the respective acquisition dates through December 31, 2013.

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Our acquisitions have required us to integrate new operations, offices and employees and to formulate and execute on marketing, product, sales, content and technology strategies associated with the acquired businesses. We continue to manage multiple brands and certain of the technology platforms of the acquired businesses, which has increased our cost of operations.
We believe that featuring desirable digital offers is necessary to attract visitors to our marketplace, which includes our websites, mobile applications, email, mobile alerts and social media distribution channels. In addition to increasing the number of visitors to our marketplace, we are focused on increasing the rate and frequency at which these visitors make purchases from retailers whose digital offers are featured in our marketplace. To meet these challenges, we are focused on a combination of marketing strategies, including pay-per-click advertising, search engine optimization, branding campaigns and email and mobile alerts, with a goal of driving visits to our marketplace as well as increasing the exposure of the digital offer category. We are also investing in product enhancements to make it easier for consumers visiting our marketplace to search and find the right digital offers and in expanding the types of digital offers available to consumers on our marketplace. We believe these enhancements will increase consumers’ interactions with retailers in our marketplace, which will in turn increase the value we are able to provide to our paid retailers.
We intend to achieve future success by continuing to focus on improving the monetization of our mobile websites and mobile applications. Since the launch of our mobile websites and mobile applications, traffic to these properties has increased significantly. However, mobile traffic generally monetizes at a lower rate than desktop traffic. We believe the comparatively lower rate of monetization primarily results from the following: (1) mobile visits tend to be more exploratory in nature, due to lower purchase intent than desktop visits, difficulties in navigating from our mobile websites and applications to retailer websites and friction in the purchase process on retailers' mobile websites, (2) we do not receive sales commissions or attribution when consumers that visit our websites and mobile applications using a mobile device subsequently make a purchase by directly accessing a retailer’s website on another device, such as a desktop or tablet or in-store (a circumstance known as cross device switching) and (3) some retailers currently do not recognize affiliate tracking links on their mobile websites or applications, and the tracking mechanisms related to such may not function to allow proper attribution of sales to us. We intend to introduce new methods of monetizing our consumer traffic, particularly the traffic to our mobile websites and applications, through a variety of methods, including improved attribution to us of the sales that we help drive for our retail and brand partners, the use of pricing structures other than our traditional commission-based model (particularly with respect to advertising) and the use of multichannel digital offer solutions.
We also intend to enhance the monetization of our websites and mobile applications by making product improvements that appeal to both consumers and retailers. These enhancements include increased leveraging of data to better personalize digital offers for consumers and to be a more effective channel for paid retailers to leverage our audience of users; further developing the location-based services features on our mobile applications to provide more geographically relevant digital offers; expanding food and dining content, which we believe consumers use on a more frequent basis; and continuing to invest in product functionality that encourages engagement of our community of users.
We also believe that recruiting, training and retaining talented employees and strengthening our direct relationships with consumers and retailers will be critical to our future success. We aim to further strengthen our value proposition for both consumers and retailers by scaling our expanded range of offer types. For example, we now offer sponsored category listings, more advertising opportunities and digital circulars and showcases to retailers and discounted digital gift cards and digital rebates to consumers.
Finally, we also plan to improve the consistency and reliability of our marketplace by continuing to invest in the development and implementation of certain universal software platforms to support our international websites. We believe this investment has allowed, and will allow in the future, us to more easily and rapidly expand organically in new geographic markets and integrate the systems of any additional digital offering businesses which we may acquire and should result in increased operational efficiency.
We believe that these significant investments in our product, team, relationships and technology will enable our expansion into new markets and improve the quality, consistency and monetization of our marketplace.

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Key Financial and Operating Metrics
We measure our business using both financial and operating metrics. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess the longer-term performance of our business. The key financial and operating metrics we use are as follows:
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(in thousands, except net revenues per visit)
Financial Metrics
 
 
 
 
 
 
Online transaction net revenues:
 
 
 
 
 
 
Desktop online transaction net revenues
 
$
173,922

 
$
219,593

 
$
190,861

Mobile online transaction net revenues
 
24,406

 
15,686

 
6,010

Total online transaction net revenues
 
198,328

 
235,279

 
196,871

Advertising and in-store net revenues
 
50,787

 
29,404

 
12,965

Net revenues
 
249,115

 
264,683

 
209,836

Adjusted EBITDA
 
71,890

 
93,900

 
81,320

Operating Metrics
 
 
 
 
 
 
Visits:
 
 
 
 
 
 
Desktop visits
 
420,485

 
499,549

 
459,805

Mobile visits
 
297,871

 
197,582

 
100,627

Total visits
 
718,356

 
697,131

 
560,432

Online transaction net revenues per visit:
 
 
 
 
 
 
Desktop online transaction net revenues per visit
 
$
0.41

 
$
0.44

 
$
0.42

Mobile online transaction net revenues per visit
 
$
0.08

 
$
0.08

 
$
0.06

Total online transaction net revenues per visit
 
$
0.28

 
$
0.34

 
$
0.35

Mobile unique visitors
 
23,194

 
21,224

 
11,913

Financial Metrics
Desktop Online Transaction Net Revenues. We define desktop online transaction net revenues as amounts paid to us by paid retailers, either directly or through performance marketing networks, in the form of commissions for completed online transactions on desktop computers and tablet devices. In general, we earn a commission from a paid retailer when a consumer clicks on a digital offer for that paid retailer on one of our websites or tablet applications and then makes an online purchase from that paid retailer.
Mobile Online Transaction Net Revenues. We define mobile online transaction net revenues as amounts paid to us by paid retailers, either directly or through performance marketing networks, in the form of commissions for completed online transactions on smartphones and other mobile devices. In general, we earn a commission from a paid retailer when a consumer clicks on a digital offer for that paid retailer on one of our websites or mobile applications and then makes an online purchase from that paid retailer.
Online Transaction Net Revenues. We define online transaction net revenues as the total of our desktop online transaction net revenues and our mobile online transaction net revenues.
Advertising and In-store Net Revenues. We define advertising net revenues collectively as amounts paid to us by paid retailers for displaying digital offers that may be redeemed on one of our websites, as well as amounts paid to us by paid retailers for providing advertising of the retailer’s brand or products in our marketplace. We define in-store net revenues collectively as commission amounts earned from paid retailers when a consumer presents a digital offer to the retailer and the digital offer is scanned or a unique digital offer code is entered by the retailer at the point of sale, as well as other amounts paid to us by paid retailers for displaying digital offers on our websites and mobile applications that may be redeemed in-store.

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Net Revenues. We define net revenues as the total of our online transaction net revenues and our advertising and in-store net revenues. We believe net revenues are an important indicator for our business because they are a reflection of the value we offer to consumers and retailers through our marketplace.

Adjusted EBITDA. We define this metric as net income plus depreciation, amortization of intangible assets, stock-based compensation expense, third party acquisition-related costs, other non-cash operating expenses (including asset impairment charges and compensation arrangements entered into in connection with acquisitions), net interest expense, other non-operating income and expenses and income taxes, net of any foreign exchange income or expenses. We believe that the use of adjusted EBITDA is helpful in evaluating our operating performance because it excludes certain non-cash expenses, including depreciation, amortization of intangible assets and stock-based compensation expense. See page 42 in Part II, Item 6: “Selected Financial Data” for additional discussion of adjusted EBITDA and the reconciliation of adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Operating Metrics
Desktop Visits. We define a desktop visit as an interaction or group of interactions that takes place on one of our websites from desktop computers and tablet devices within a given time frame as measured by Google Analytics, a product that provides digital marketing intelligence. A single visit can contain multiple page views, events, social interactions, custom variables, and e-commerce transactions. A single visitor can open multiple visits. Visits can occur on the same day, or over several days, weeks, or months. As soon as one visit ends, there is then an opportunity to start a new visit. A visit ends either through the passage of time or a campaign change, with a campaign generally meaning arrival via search engine, referring site, or campaign-tagged information. A visit ends through passage of time either after 30 minutes of inactivity or at midnight Pacific Time. A visit ends through a campaign change if a visitor arrives via one campaign or source, leaves the site, and then returns via another campaign or source. Currently, visits do not include interactions on our tablet applications.
Mobile Visits. We define a mobile visit as an interaction or group of interactions that takes place on one of our mobile websites from smartphones and other mobile devices within a given time frame as measured by Google Analytics, a product that provides digital marketing intelligence. A single visit can contain multiple page views, events, social interactions, custom variables, and e-commerce transactions. A single visitor can open multiple visits. Visits can occur on the same day, or over several days, weeks, or months. As soon as one visit ends, there is then an opportunity to start a new visit. A visit ends either through the passage of time or a campaign change, with a campaign generally meaning arrival via search engine, referring site, or campaign-tagged information. A visit ends through passage of time either after 30 minutes of inactivity or at midnight Pacific Time. A visit ends through a campaign change if a visitor arrives via one campaign or source, leaves the site, and then returns via another campaign or source. Currently, mobile visits do not include interactions on our mobile applications.
Visits. We define visits as the total of our desktop visits and mobile visits. We view visits to our websites as a key indicator of our brand awareness among consumers and whether we are providing consumers with useful products and features, thereby increasing their usage of our marketplace. We believe that a higher level of usage may contribute to an increase in our net revenues and exclusive digital offers as retailers will have exposure to a larger potential customer base.
Desktop Online Transaction Net Revenues per Visit. We define desktop online transaction net revenues per visit as desktop online transaction net revenues for the period divided by desktop visits for the period.
Mobile Online Transaction Net Revenues per Visit. We define mobile online transaction net revenues per visit as mobile online transaction net revenues for the period divided by mobile visits for the period.
Online Transaction Net Revenues per Visit. We define online transaction net revenues per visit as online transaction net revenues for the period divided by visits for the period.
Mobile Unique Visitors. This amount represents the average number of monthly mobile unique visitors for the last three months of the period. We define each of the following as a mobile unique visitor: (i) the first time a specific mobile device accesses one of our mobile applications during a calendar month, and (ii) the first time a specific mobile device accesses one of our mobile websites using a specific web browser during a calendar month. If a mobile device accesses more than one of our mobile websites or mobile applications in a single calendar month, the first access to each such mobile website or mobile application is counted as a mobile unique visitor, as they are tracked separately for each mobile domain. We measure mobile unique visitors with a combination of internal data sources and Google Analytics data.

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We view mobile unique visitors as a key indicator of the size of our mobile audience as well as our brand awareness among consumers and usage of our mobile solutions which we expect to be important as users increasingly rely on their mobile devices.
Key Components of Our Results of Operations
Net Revenues
The substantial majority of our net revenues consist of commissions we receive from paid retailers, either directly or through performance marketing networks. In general, we earn commissions from a paid retailer when a consumer makes a purchase online from that paid retailer after clicking on a digital offer for that paid retailer on one of our websites or mobile applications. We also earn revenues from our in-store product, which include commissions earned from a retailer when a consumer presents a digital offer to the retailer in-store and the digital offer is scanned or a unique digital offer code is entered by the retailer at the point of sale, and amounts paid to us by retailers for displaying digital offers that may be redeemed in-store on our websites or mobile applications. We provide performance marketing solutions under contracts with retailers, which generally provide for commission payments to be facilitated by performance marketing networks. Commission rates are typically negotiated with individual retailers with which we have contracts. Our commission rates vary based on a variety of factors, including the retailer, the level of exposure to consumers in our marketplace, the quality and volume of sales realized from consumers using digital offers in our marketplace and the category of products purchased using digital offers. We recognize commission revenues when we receive confirmation that a consumer has completed a purchase transaction with a paid retailer, as reported to us through a performance marketing network, or in some cases, by the retailer directly. When a digital offer applies only to specific items, the discount to the consumer will be applied only to those specific items, but our commission is generally based on the aggregate purchase price of all items purchased at that time by the consumer. Finally, we also earn advertising revenues from advertising in our marketplace. Rates for advertising are typically negotiated with individual retailers with which we have contracts. Payments for advertising may be made directly by retailers or through performance marketing networks. We expect that the majority of our net revenues in the future will continue to be derived from commissions. Commission revenues are reported net of a reserve for estimated returns. We estimate returns based on our actual historical returns experience. These returns have not been significant.
Costs and Expenses
We classify our costs and expenses into six categories: cost of net revenues, product development, sales and marketing, general and administrative, amortization of purchased intangible assets and other operating expenses. We allocate our personnel, facilities and general information technology, or IT, costs, which include IT and facilities-related personnel costs, rent, depreciation and other general costs, to all of the above categories of operating expenses, other than amortization of purchased intangibles and other operating expenses.
We expect personnel costs will be higher in 2016, both in absolute dollars and as a percentage of net revenues, when compared to 2015 as a result of our plan to increase personnel in 2016 as we continue to invest in our business. Personnel costs for employees include salaries and amounts earned under variable compensation plans, payroll taxes, benefits, stock-based compensation expense, costs associated with recruiting new employees, travel costs and other employee-related costs.
Cost of Net Revenues
Our cost of net revenues consists of direct and indirect costs incurred to generate net revenues. These costs consist primarily of personnel costs of our merchandising, site operations and website technical support employees; fees paid to third-party contractors engaged in the operation and maintenance of our websites and mobile applications; depreciation; and website hosting and Internet service costs. We expect our cost of net revenues to increase in both absolute dollars and as a percentage of net revenues in 2016 as we continue to build our infrastructure to support our business across multiple markets, endeavor to improve offer diversity and quality and increase the number and amount of consumer purchases resulting from visits to our websites and from use of our mobile applications.
Product Development
Our product development expense consists primarily of personnel costs of our product management and software engineering teams, as well as fees paid to third-party contractors and consultants engaged in the design, development, testing and improvement of the functionality and user experience of our websites and mobile applications. We intend to continue to increase our software engineering resources over the next year by hiring additional personnel to develop new features and products for our websites and mobile applications. We expect these additional investments to cause our product development expense to increase both in absolute dollars and as a percentage of net revenues in 2016.

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Sales and Marketing
Our sales and marketing expense consists primarily of personnel costs of our sales, marketing, SEO and business analytics employees, as well as online and other advertising expenditures, branding programs and other marketing expenses. Our advertising, branding programs and other marketing costs include paid search advertising fees, online display advertising, including on social networking sites, television advertising, creative development fees, public relations, email campaigns, trade show costs, sweepstakes and promotions and other general marketing costs. We intend to increase our sales and marketing efforts in 2016 to drive consumer traffic to our websites, encourage downloads of our mobile applications, strengthen our relationships with retailers and increase overall awareness of our brand. Therefore, we expect our sales and marketing expenses to increase both in absolute dollars and as a percentage of net revenues in 2016.
General and Administrative
Our general and administrative expense consists primarily of the personnel costs of our general corporate functions, including executive, finance, accounting, legal and human resources. Other costs included in general and administrative include professional fees for legal, audit and other consulting services, travel and entertainment, charitable contributions, provision for doubtful accounts receivable and other general corporate overhead expenses. We expect our general and administrative expenses to decrease both in absolute dollars and as a percentage of net revenues in 2016.
Amortization of Purchased Intangibles
We have recorded identifiable intangible assets in conjunction with our various acquisitions, and are amortizing those assets over their estimated useful lives. We perform impairment testing of goodwill annually on October 1 of each year and, in the case of intangibles with definite lives, whenever events or circumstances indicate that impairment may have occurred. We expect our amortization expenses to decline in absolute dollars and as a percentage of net revenues in 2016. However, changes in our amortization expenses will depend upon the level of our future acquisition activity.
Other Operating Expenses
Other operating expenses for 2015 consist primarily of amortization expense related to deferred compensation agreements with the selling stockholders of YSL Ventures, Inc. and expense recognized as a result of the identified impairment of purchased intangible assets associated with Bons-de-Reduction.com.
In 2013, we acquired YSL Ventures, Inc. and entered into $6.2 million in deferred compensation agreements with the selling stockholders of the business, $3.1 million of which was paid in October 2014 and the remaining $3.1 million of which was paid in equal quarterly installments over the following year, concluding in October 2015. The deferred compensation was due and payable contingent upon the continued employment of the selling stockholders and as a result we amortized the associated expense over the term of the compensation arrangement with the sellers.
In October 2015, we decided to no longer support the Bons-de-Reduction.com brand. We have redirected traffic from Bons-de-Reduction.com to Poulpeo.com, and do not expect Bons-de-Reduction.com to provide additional income. As a result, we determined that a complete impairment of the remaining unamortized intangible assets associated with Bons-de-Reduction was warranted, resulting in an impairment charge of $2.3 million.
Other operating expenses for 2014 and 2013 consist primarily of amortization expense related to deferred compensation agreements with the selling stockholders of YSL Ventures, Inc. and Bons-de-Reduction.com and Poulpeo.com. In 2012, we acquired Bons-de-Reduction.com and Poulpeo.com and issued $3.5 million in seller notes to the selling stockholders of the business. These seller notes were due and payable contingent upon the continued employment of the selling stockholders and as a result have been recorded as deferred compensation, which we amortized over the term of the compensation arrangement with the sellers, which was completed in May 2014.
We expect other operating expenses to decrease in absolute dollars and as a percentage of net revenues in 2016 as a result of the completion during 2015 of our deferred compensation agreement with the selling stockholders of YSL Ventures, Inc.
Other Income (Expense)
Amounts included in other income (expense) include interest income earned on our available cash and cash equivalents, interest expense incurred in connection with our long term debt and the amortization of deferred financing costs. We also include in other income (expense), net foreign currency exchange gains and losses, as well as gains and losses related to our

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foreign exchange derivative instruments. Changes in these amounts will depend to some extent upon the level of our future borrowing activity and movements in foreign currency.
Income Tax Expense
Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions, tax credits, state taxes and non-deductible expenses, such as deferred compensation, acquisition costs and stock-based compensation. Our mix of foreign versus U.S. income, our ability to generate tax credits and our incurrence of any non-deductible expenses will likely cause our effective tax rate to fluctuate in the future. Our effective tax rate is also affected by discrete items that may occur in any given year, but are not consistent from year to year. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
During the first quarter of 2014, we implemented a global corporate restructuring plan involving our non-U.S. entities to streamline our non-U.S. operations. The impact of this restructuring has resulted in, and may continue to result in, volatility in our provision for income taxes and our effective tax rate.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires estimates, judgments and assumptions that affect the reported amounts and classifications of assets and liabilities, net revenues and expenses and the related disclosures of contingent liabilities in our consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates addressed below.
We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. See Note 2 “Summary of Significant Accounting Policies” of Part II, Item 8: “Financial Statements.” Of those policies, we believe that the accounting policies discussed below involve the greatest degree of complexity and exercise of judgment by our management. We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Business Combinations and the Recoverability of Goodwill and Long-Lived Intangible Assets
A significant component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. Though we did not acquire any businesses during 2015, we expect to do so in the future. We account for business combinations using the purchase method of accounting and allocate the purchase price of each acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair value at the purchase date. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.
In determining the fair value of assets acquired and liabilities assumed in a business combination, we use recognized valuation methods, including the income approach, market approach and cost approach, and apply present value modeling. Our significant estimates in the income, market or cost approach include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable net revenues and operating income multiples in estimating the fair value. We also make certain assumptions specific to present value modeling valuation techniques which include risk-adjusted discount rates, future commission rates, rates of increase in operating expenses, weighted-average cost of capital, long-term growth rate assumptions and the future effective income tax rates.
Most of the businesses we have acquired did not have a significant amount of tangible assets. As a result, our acquisitions have resulted in the majority of the purchase price being allocated to identifiable intangible assets and goodwill. The long-lived intangible assets we have identified in each acquisition include customer relationships and marketing-related, contract-related and technology-based intangible assets. All of our long-lived intangible assets have a definite life that ranges from one year to 15 years, which we have determined reflects our best estimate of the pattern in which the economic benefit of the related intangible asset will be utilized.

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The valuations of our acquired businesses have been performed by valuation specialists under our management’s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and may have a material effect on our financial condition and operating results.
We perform our annual impairment testing of goodwill as of October 1 of each year, and whenever events or circumstances indicate that impairment may have occurred. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, significant changes in competition, a loss of key personnel, significant changes in our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
We evaluate the recoverability of goodwill using a two-step impairment process tested at the reporting segment level. In the first step, the fair value for our reporting unit is compared to our book value including goodwill. For purposes of performing the required impairment test, we derive enterprise fair value utilizing the market capitalization approach, whereby the market value of our outstanding shares of common stock are utilized to calculate the fair value of our sole reporting unit. In the case that the fair value is less than the book value, a second step is performed that compares the implied fair value of goodwill to the book value of the goodwill. The fair value for the implied goodwill is determined based on the difference between the fair value of the sole reporting segment and the net fair value of the identifiable assets and liabilities excluding goodwill. If the implied fair value of the goodwill is less than the book value, the difference is recognized as an impairment charge in the consolidated statements of operations.
Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, we compare the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered, the fee to our customers is fixed or determinable and collectability of the resulting receivable is reasonably assured. For commission revenues, which represent the substantial majority of our net revenues, revenue recognition generally occurs when a consumer, having visited one of our websites and clicked on a digital offer for a paid retailer, makes a purchase with such paid retailer, and completion of the order is reported to us by such paid retailer, either directly or through a performance marketing network. Certain paid retailers do not provide reporting until a cash payment is made. In those cases, which have historically not been significant, we record commission revenues on a cash basis. For advertising revenues, revenue recognition occurs over the period that we display a retailer’s advertisements on our websites and mobile applications.
Multiple Element Arrangements. When we enter into revenue arrangements with customers that are comprised of multiple deliverables, we allocate consideration to all deliverables based on the relative selling price method in accordance with the selling price hierarchy. The objective of the hierarchy is to determine the price at which we would transact a sale if the service were sold on a stand-alone basis and requires the use of: (1) vendor-specific objective evidence, or VSOE, if available; (2) third-party evidence, or TPE, if VSOE is not available; and (3) best estimate of selling price, or BESP, if neither VSOE nor TPE is available.
VSOE. We determine VSOE based on our historical pricing and discounting practices for the specific service when sold separately. In determining VSOE, we require that a substantial majority of the stand-alone selling prices for these services fall within a reasonably narrow pricing range. We have not historically sold our services within a reasonably narrow pricing range. As a result, we have not been able to establish VSOE.
TPE. When VSOE cannot be established for deliverables in multiple element arrangements, we apply judgment with respect to whether we can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of services cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.

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BESP. When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the service were sold on a stand-alone basis. BESP is generally used to allocate the selling price to deliverables in our multiple element arrangements. We determine BESP for deliverables by considering multiple factors including, but not limited to, prices we charge for similar offerings, market conditions, competitive landscape and pricing practices. We limit the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on future performance or future deliverables.
If the facts and circumstances underlying the factors we considered change or should future facts and circumstances lead us to consider additional factors, both our determination of our relative selling price under the hierarchy and our BESPs could change in future periods.
We estimate and record a reserve based upon actual, historical return rates as reported to us by paid retailers to provide for end-user cancelations or product returns, which may not be reported by the paid retailer or performance marketing network until a subsequent date. As such, we report commission revenues net of the estimated returns reserve. Net revenues are reported net of sales taxes, where applicable.
Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be affected by differences between our anticipated and the actual mix of earnings generated across different tax jurisdictions which have higher or lower statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations.
We account for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed or settled. We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Any change in the valuation allowance would be charged to income in the period such determination was made. We recognize a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be sustained.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits and any related litigation could be materially different from historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that determination is made.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes of our undistributed earnings of foreign subsidiaries indefinitely invested outside the U.S. Should we decide to repatriate our foreign earnings, we would need to adjust our income tax provision in the period we determined that those earnings would no longer be indefinitely invested outside the U.S.

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Stock-Based Compensation
We measure stock-based compensation expense at fair value and generally recognize the corresponding compensation expense, net of estimated forfeitures, on a straight-line basis over the service period during which awards are expected to vest. Forfeiture rates are estimated periodically based on historical experience and adjusted in subsequent periods for differences in actual forfeitures from those estimates.
We use the Black-Scholes-Merton option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimates of a number of complex and subjective variables. These variables include:
 
Fair Value of Our Common Stock. Because our stock was not publicly traded prior to our offering in July 2013, the fair value of our common stock underlying our stock options was previously determined by our board of directors, which intended all options to be exercisable at a price per share not less than the per share value of our common stock underlying those options on the date of grant. Following the completion of our initial public offering our common stock is being valued by reference to its publicly traded price.
Expected Term. The expected term represents the period of time the stock options are expected to be outstanding and is based on the “simplified method” allowed under applicable SEC guidance. We used the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options.
Expected Volatility. Since we do not have a significant trading history for our Series 1 common stock, the expected stock price volatility was estimated by taking the average historical price volatility for publicly-traded stock of comparable industry peers similar in size, stage of life cycle and financial leverage, based on daily price observations over a period equivalent to the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our Series 1 common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case more suitable companies whose share prices are publicly available would be utilized in the calculation.
Dividend Yield. We do not presently plan to pay cash dividends on our Series 1 common stock in the foreseeable future. Consequently, we used an expected dividend yield of zero.
Risk-free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
The fair value of restricted stock units, or RSUs, equals their intrinsic value on the date of grant.

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Results of Operations
The following table presents our historical operating results for the periods indicated. The period-to-period comparisons of financial results are not necessarily indicative of future results.
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(in thousands)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
Net revenues
 
$
249,115

 
$
264,683

 
$
209,836

Costs and expenses:
 
 
 
 
 
 
Cost of net revenues
 
19,904

 
18,617

 
13,049

Product development
 
51,580

 
47,882

 
30,566

Sales and marketing
 
99,380

 
90,062

 
70,303

General and administrative
 
39,813

 
42,343

 
28,583

Amortization of purchased intangible assets
 
10,664

 
12,243

 
12,081

Other operating expenses
 
4,616

 
4,065

 
2,525

Total costs and expenses
 
225,957

 
215,212

 
157,107

Income from operations
 
23,158

 
49,471

 
52,729

Other income (expense):
 
 
 
 
 
 
Interest expense, net
 
(1,988
)
 
(1,981
)
 
(2,980
)
Other income (expense), net
 
(315
)
 
(1,102
)
 
672

Income before income taxes
 
20,855

 
46,388

 
50,421

Provision for income taxes
 
(9,007
)
 
(19,423
)
 
(18,891
)
Net income
 
$
11,848

 
$
26,965

 
$
31,530

 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
Consolidated Statements of Operations Data as Percentage of Net Revenues:
 
 
 
 
 
 
Net revenues
 
100.0
 %
 
100.0
 %
 
100.0
 %
Costs and expenses:
 
 
 
 
 
 
Cost of net revenues
 
8.0

 
7.0

 
6.2

Product development
 
20.7

 
18.1

 
14.6

Sales and marketing
 
39.9

 
34.0

 
33.5

General and administrative
 
16.0

 
16.0

 
13.6

Amortization of purchased intangible assets
 
4.3

 
4.6

 
5.8

Other operating expenses
 
1.9

 
1.6

 
1.2

Total costs and expenses
 
90.7

 
81.3

 
74.9

Income from operations
 
9.3

 
18.7

 
25.1

Other income (expense):
 
 
 
 
 
 
Interest expense, net
 
(0.8
)
 
(0.7
)
 
(1.4
)
Other income (expense), net
 
(0.1
)
 
(0.5
)
 
0.3

Income before income taxes
 
8.4

 
17.5

 
24.0

Provision for income taxes
 
(3.6
)
 
(7.3
)
 
(9.0
)
Net income
 
4.8
 %
 
10.2
 %
 
15.0
 %



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Net Revenues
 
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(dollars in thousands)
Net Revenues by Source:
 
 
 
 
 
 
Desktop online transactions
 
$
173,922

 
$
219,593

 
$
190,861

Mobile online transactions
 
24,406

 
15,686

 
6,010

Online transactions
 
198,328

 
235,279

 
196,871

Advertising and in-store
 
50,787

 
29,404

 
12,965

Total net revenues
 
$
249,115

 
$
264,683

 
$
209,836

Percentage of Net Revenues by Source:
 
 
 
 
 
 
Desktop online transactions
 
69.8
%
 
83.0
%
 
91.0
%
Mobile online transactions
 
9.8

 
5.9

 
2.8

Online transactions
 
79.6

 
88.9

 
93.8

Advertising and in-store
 
20.4

 
11.1

 
6.2

Total percentage of net revenues
 
100.0
%
 
100.0
%
 
100.0
%
Net Revenues by Geography:
 
 
 
 
 
 
U.S.
 
$
195,788

 
$
206,865

 
$
166,532

International
 
53,327

 
57,818

 
43,304

Total net revenues
 
$
249,115

 
$
264,683

 
$
209,836

Percentage of Net Revenues by Geography:
 
 
 
 
 
 
U.S.
 
78.6
%
 
78.2
%
 
79.4
%
International
 
21.4

 
21.8

 
20.6

Total percentage of net revenues
 
100.0
%
 
100.0
%
 
100.0
%
 
2015 compared to 2014. Net revenues decreased by $15.6 million, or 5.9%, for the year ended December 31, 2015 compared to the year ended December 31, 2014.