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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-33105

403895134_tmglogo.jpg
The Meet Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
86-0879433
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
100 Union Square Drive, New Hope, Pennsylvania 18938
(Address of Principal Executive Office)

Registrant’s Telephone Number: (215) 862-1162
Securities registered pursuant to Section 12(b) of the Exchange Act
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock
 
MEET
 
NASDAQ

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ☐    Accelerated filer    ☑    Non-accelerated filer    
Smaller reporting company        Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No
Class
 
Outstanding as of May 1, 2020
Common Stock, $0.001 par value per share
 
71,803,638 shares
 





THE MEET GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




PART I. FINANCIAL INFORMATION 

ITEM 1.    FINANCIAL STATEMENTS

THE MEET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
 
(Unaudited)
 
 
 
March 31, 2020
 
December 31, 2019
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
32,110

 
$
27,241

Accounts receivable, net
23,966

 
25,234

Prepaid expenses and other current assets
5,820

 
6,062

Total current assets
61,896

 
58,537

Deferred tax assets
16,211

 
16,233

Property and equipment, net
3,047

 
3,625

Operating lease right-of-use assets
7,138

 
7,034

Intangible assets, net
26,945

 
29,305

Goodwill
155,693

 
156,687

Other assets
850

 
1,300

Total assets
$
271,780

 
$
272,721

Liabilities and stockholders' equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
7,518

 
$
5,346

Accrued liabilities
18,915

 
20,090

Current portion of long-term debt
3,500

 
3,500

Current portion of operating lease liabilities
2,527

 
2,081

Current portion of finance lease obligations
9

 
10

Deferred revenue
3,563

 
3,884

Total current liabilities
36,032

 
34,911

Long-term debt, net
29,523

 
30,375

Long-term operating lease liabilities
4,723

 
5,024

Long-term finance lease obligations
48

 
53

Long-term derivative liabilities
477

 
1,451

Deferred tax liabilities
2,888

 
2,773

Other liabilities

 
894

Total liabilities
73,691

 
75,481

Commitments and contingencies


 


Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value; authorized - 5,000,000 shares; no shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

Series A junior participating preferred stock, $0.001 par value; authorized - 200,000 shares; no shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

Common stock, $0.001 par value; authorized - 100,000,000 shares; 71,185,492 and 70,756,013 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
71

 
71

Additional paid-in capital
434,622

 
430,959

Accumulated deficit
(234,073
)
 
(231,441
)
Accumulated other comprehensive loss
(2,531
)
 
(2,349
)
Total stockholders equity
198,089

 
197,240

Total liabilities and stockholders equity
$
271,780

 
$
272,721


See notes to consolidated financial statements.

3




THE MEET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(in thousands, except share and per share data)
 
Three Months Ended March 31,
 
2020
 
2019
Revenue
$
55,066

 
$
49,513

Operating costs and expenses:
 
 
 
Sales and marketing
7,714

 
7,841

Product development and content
37,671

 
31,123

General and administrative
5,030

 
4,928

Depreciation and amortization
2,820

 
3,198

Acquisition, restructuring and other
3,370

 
479

Total operating costs and expenses
56,605

 
47,569

(Loss) income from operations
(1,539
)
 
1,944

Other income (expense):
 
 
 
Interest income
13

 
32

Interest expense
(396
)
 
(403
)
Loss on foreign currency transactions
(7
)
 
(65
)
Loss on disposal of assets
(108
)
 

Other items of income, net
2

 
4

Total other expense
(496
)
 
(432
)
(Loss) income before income tax expense
(2,035
)
 
1,512

Income tax expense
(373
)
 
(254
)
Net (loss) income
$
(2,408
)
 
$
1,258

 
 
 
 
Basic and diluted net (loss) income per share:
 
 
 
Basic net (loss) income per share
$
(0.03
)
 
$
0.02

Diluted net (loss) income per share
$
(0.03
)
 
$
0.02

 
 
 
 
Weighted-average shares outstanding:
 
 
 
Basic
71,001,906

 
74,848,080

Diluted
71,001,906

 
78,799,248

 
 
 
 
Comprehensive (loss) income:
 
 
 
Net (loss) income
$
(2,408
)
 
$
1,258

Other comprehensive loss:
 
 
 
Reclassification of gains on derivative financial instruments, net of tax of $274 and $346, respectively
(597
)
 
(776
)
Unrealized gains on derivative financial instruments, net of tax of $454 and $386, respectively
822

 
828

Foreign currency translation adjustment
(407
)
 
(321
)
Other comprehensive loss
(182
)
 
(269
)
Comprehensive (loss) income
$
(2,590
)
 
$
989


See notes to consolidated financial statements.

4




THE MEET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
(in thousands, except share data)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders

Equity
 
Shares
 
Amount
 
 
 
 
Balance as of January 1, 2020
70,756,013

 
$
71

 
$
430,959

 
$
(231,441
)
 
$
(2,349
)
 
$
197,240

Accounting Standards Update No. 2016-13

 

 

 
(159
)
 

 
(159
)
Stock-based compensation expense

 

 
3,185

 

 

 
3,185

Exercise of stock options
162,841

 

 
564

 

 

 
564

Issuance of common stock for vested restricted stock awards
279,573

 

 

 

 

 

Restricted stock awards withheld to cover taxes

 

 
(86
)
 

 

 
(86
)
Repurchase and retirement of common stock
(12,935
)
 

 

 
(65
)
 

 
(65
)
Other comprehensive loss

 

 

 

 
(182
)
 
(182
)
Net loss

 

 

 
(2,408
)
 

 
(2,408
)
Balance as of March 31, 2020
71,185,492

 
$
71

 
$
434,622

 
$
(234,073
)
 
$
(2,531
)
 
$
198,089

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2019
74,697,526

 
$
75

 
$
419,456

 
$
(220,276
)
 
$
(2,034
)
 
$
197,221

Stock-based compensation expense

 

 
2,425

 

 

 
2,425

Exercise of stock options
151,737

 

 
681

 

 

 
681

Issuance of common stock for vested restricted stock awards
420,772

 
1

 
(1
)
 

 

 

Restricted stock awards withheld to cover taxes

 

 
(89
)
 

 

 
(89
)
Other comprehensive loss

 

 

 

 
(269
)
 
(269
)
Net income

 

 

 
1,258

 

 
1,258

Balance as of March 31, 2019
75,270,035

 
$
76

 
$
422,472

 
$
(219,018
)
 
$
(2,303
)
 
$
201,227


See notes to consolidated financial statements.

5




THE MEET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(2,408
)
 
$
1,258

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 
 
Depreciation and amortization
2,820

 
3,198

Amortization of right-of-use assets
635

 
695

Stock-based compensation expense
3,185

 
2,425

Deferred tax expense (benefit)
9

 
(147
)
Loss on disposal of assets
108

 

Loss on foreign currency transactions
7

 
65

Provision for expected credit losses
82

 
325

Non-cash interest expense
120

 
38

Changes in derivative financial instruments
171

 

Changes in contingent consideration obligations
23

 
16

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
944

 
1,187

Prepaid expenses, other current assets and other assets
768

 
(774
)
Accounts payable and accrued liabilities
(638
)
 
(5,009
)
Deferred revenue
(275
)
 
85

Net cash provided by operating activities
5,551

 
3,362

Cash flows from investing activities:

 
 
Purchases of property and equipment
(87
)
 
(283
)
Acquisition of business, net of cash acquired

 
(11,808
)
Net cash used in investing activities
(87
)
 
(12,091
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
564

 
681

Repurchases of common stock
(65
)
 

Payments of finance leases
(5
)
 
(41
)
Proceeds from revolving loan

 
7,000

Payments for restricted stock awards withheld for taxes
(86
)
 
(89
)
Payments of term loan
(875
)
 
(7,317
)
Net cash (used in) provided by financing activities
(467
)
 
234

Change in cash and cash equivalents prior to effect of foreign currency exchange rate
4,997

 
(8,495
)
Effect of foreign currency exchange rate
(128
)
 
(60
)
Net increase (decrease) in cash and cash equivalents
4,869

 
(8,555
)
Cash and cash equivalents as of beginning of period
27,241

 
28,366

Cash and cash equivalents as of end of period
$
32,110

 
$
19,811

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
123

 
$
361

Cash paid for income taxes
$
973

 
$
297


See notes to consolidated financial statements.

6




THE MEET GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Description of Business, Basis of Presentation and Summary of Significant Accounting Policies 

Description of Business

The Meet Group, Inc. (“Company,” or “The Meet Group”) is a leading provider of interactive live-streaming solutions. The Company leverages a powerful live video platform (“Live”), empowering its global community to forge meaningful connections. The Company’s primary applications (“apps”) are MeetMe®, Skout®, Tagged®, LOVOO® and Growlr®.

The Company operates location-based social networks for meeting new people — primarily on mobile platforms, including on iPhone, Android, iPad and other tablets — that facilitate interactions among users and encourage users to connect, communicate and engage with each other.

The Company also offers online marketing capabilities, which enable marketers to display their advertisements on its apps.

Basis of Presentation 

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the date of the consolidated financial statements.

The consolidated financial statements include the accounts of The Meet Group and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included therein in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 12, 2020.

Merger Agreement

On March 5, 2020, the Company entered into a definitive agreement to be acquired by ProSiebenSat.1 Media SE’s and General Atlantic Coöperatief U.A.’s joint company, NCG – NUCOM GROUP SE, a European stock corporation (“NuCom”), through eHarmony Holding, Inc., a subsidiary of NuCom’s platform company Parship Group GmbH (“Buyer”). Pursuant to the Agreement and Plan of Merger (“Merger Agreement”), by and among the Company, Buyer, Holly Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Buyer (“Merger Sub”), and NuCom, solely for the purpose of guaranteeing Buyer’s obligations under the Merger Agreement, Merger Sub shall merge with and into the Company (“Merger”). As a result of the Merger, the separate corporate existence of Merger Sub shall cease, the Company shall continue as the surviving corporation in the Merger (“Surviving Corporation”) and the Surviving Corporation shall become a wholly-owned subsidiary of Buyer. The Company recorded $3.1 million of acquisition, restructuring and other expenses related to the Merger Agreement during the three months ended March 31, 2020.

The Company expects the Merger to close in the second half of 2020, subject to the satisfaction of all closing conditions.


7




Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of business combinations and contingent consideration arrangements, income taxes, the valuation of long-lived assets, including property and equipment, definite-lived intangible assets and goodwill and accounting for contingencies. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. The Company’s estimates are often based on complex judgments, probabilities and assumptions that it believes are reasonable but are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause it to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturn, can increase the uncertainty already inherent in its estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in the Company’s consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. The Company is also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in competition, litigation, legislation and regulations.

Recently-issued Accounting Standards

Recently-adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which requires the measurement and recognition of expected credit losses for certain financial assets, including trade accounts receivable. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of relevant information, including an entity’s historical experience, current conditions and other reasonable and supportable forecasts that affect collectability over the life of a financial asset. The amendments in ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted.

The Company adopted ASU No. 2016-13 on January 1, 2020, which resulted in an increase of $0.2 million to its allowance for credit losses that was recognized as a cumulative effect adjustment to its accumulated deficit under a modified retrospective transition method. The new standard did not materially impact the Company’s results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). This standard removes, modifies and makes certain additions to the disclosure requirements for fair value measurement. The amendments in ASU No. 2018-13 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted. The Company adopted ASU No. 2018-13 on January 1, 2020, and it did not have a material impact to its consolidated financial statement disclosures.

Accounting Standards Issued and Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification Topic 740, Income Taxes, and clarifies and amends certain existing guidance. The amendments in ASU No. 2019-12 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its financial position, results of operations and cash flows.


8




Impact of the 2019 Novel Coronavirus

The Company is closely monitoring the impact of the 2019 novel coronavirus (“COVID-19”) on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the U.S. President declared the COVID-19 outbreak a national emergency. While the COVID-19 pandemic has had minimal impact on the Company’s operations and financial results to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may negatively impact the Company’s results of operations, cash flows and financial position as well as its vendors, advertising partners and users.

Note 2 — Credit Risk and Allowance for Credit Losses

The Company is exposed to significant concentrations of credit risk for certain of its financial assets, including cash, cash equivalents and accounts receivable.

Cash and Cash Equivalents

Cash is carried on the Company’s consolidated balance sheets at amortized cost and consists primarily of U.S. dollars and euros held in insured depository accounts with major U.S. and international banks and financial institutions. The Company believes its risk of credit losses for cash is remote, and, accordingly, its allowance for credit losses was insignificant as of March 31, 2020 and December 31, 2019. As of March 31, 2020 and December 31, 2019, $25.4 million and $19.7 million of cash exceeded depository insurance limits, respectively.

The Company invests certain of its cash in cash equivalents that are high-quality, liquid money market funds maintained by major U.S. and international banks and financial institutions, and it does not have a history of any losses on its cash and/or cash equivalents. The Company’s cash equivalents are measured at fair value on its consolidated balance sheets using Level 1 inputs of the fair value hierarchy.

Accounts Receivable, Net

Accounts receivable are carried on the Company’s consolidated balance sheets at amortized cost, net of an allowance for expected credit losses. The Company extends credit in the normal course of business to both U.S. and international customers on a non-collateralized basis under payment terms that typically range from 30 to 120 days. Accounts receivable are written-off in the period that management determines they are uncollectible.

The following table sets forth the composition of accounts receivable, net as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Accounts receivable
$
24,476

 
$
25,503

Less: Allowance for credit losses
(510
)
 
(269
)
Accounts receivable, net
$
23,966

 
$
25,234



The Company estimates an allowance for credit losses on its accounts receivable using historical information, current events and reasonable and supportable forecasts of future events. Such information includes, but is not limited to, the Company’s historical collections trends, its customers’ credit histories and other financial information, customer type, customer-specific circumstances, industry, peer and economic data. To estimate the allowance for credit losses, the Company uses an aging method that assigns a provision for expected credit losses to each aging category of accounts receivable, including current accounts, which increases as accounts age and/or extend past their due dates. The Company does not have a significant history of material losses from uncollectible accounts.


9




The following table sets forth a summary of the changes in the Company’s allowance for credit losses related to accounts receivable for the three months ended March 31, 2020 and 2019:
 
 
Three Months Ended March 31,
(in thousands)
 
2020
 
2019
Balance as of January 1
 
$
428

 
$
384

Provision for expected credit losses
 
82

 
325

Balance as of March 31
 
$
510

 
$
709



Concentration of Credit Risk

Three customers, which were advertising aggregators or payment processors representing thousands of advertisers, comprised 63% and 42% of the Company’s accounts receivable as of March 31, 2020 and December 31, 2019, respectively.

Note 3 — Prepaid Expenses and Other Current Assets

The following table sets forth the composition of prepaid expenses and other current assets as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Value-added tax and income tax receivables
$
1,786

 
$
1,312

Fair value of derivative assets
655

 
583

Prepaid insurance
402

 
659

Prepaid support contracts
555

 
443

Prepaid service providers
1,606

 
1,765

Prepaid advertising
404

 
680

Other prepaid expenses and other current assets
412

 
620

Total prepaid expenses and other current assets
$
5,820

 
$
6,062



Note 4 — Property and Equipment, Net

The following table sets forth the composition of the Company’s property and equipment, net as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Servers, computer equipment and software
$
14,930

 
$
14,901

Office furniture and equipment
879

 
863

Leasehold improvements
677

 
671

Total property and equipment
16,486

 
16,435

Less: Accumulated depreciation
(13,439
)
 
(12,810
)
Total property and equipment, net
$
3,047

 
$
3,625



Depreciation expense was $0.6 million for each of the three months ended March 31, 2020 and 2019.

Note 5 — Leases

The Company has operating leases for its operating facilities, data center storage facilities and certain data storage equipment in the U.S. and Germany, and finance leases for certain data centers, printers and other furniture in its German offices. The Company's lease terms include options to extend or terminate the lease and the Company includes these options in the lease term when it is reasonably certain to exercise that option.


10




The following table sets forth the Company’s lease costs for the three months ended March 31, 2020 and 2019:
 
 
Three Months Ended March 31,
(in thousands)
 
2020
 
2019
Lease costs:
 
 
 
 
Operating lease cost(1)
 
$
723

 
$
725

 
 
 
 
 
Finance lease cost:
 
 
 
 
Depreciation expense
 
$
5

 
$
2

Interest on lease liabilities
 
1

 
2

Total finance lease cost
 
$
6

 
$
4

(1) Short-term lease costs were immaterial.

The following table sets forth the supplemental cash flow information for the Company’s leases for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
683

 
$
738

Operating cash flows for finance leases
$
1

 
$
2

Financing cash flows for finance leases
$
5

 
$
41

 
 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
794

 
$
4,070



The following table sets forth the Company’s aggregate future lease payments for operating and finance leases as of March 31, 2020:
(in thousands)
 
 
 
 
Years Ending December 31,
 
Operating Leases
 
Finance Leases
Remaining in 2020
 
$
2,167

 
$
9

2021
 
2,459

 
12

2022
 
1,109

 
12

2023
 
585

 
12

2024
 
549

 
12

Thereafter
 
1,163

 
9

Total minimum lease payments
 
8,032

 
66

Less: Amount representing interest
 
782

 
9

Present value of minimum lease payments
 
7,250

 
57

Less: Current portion
 
2,527

 
9

Long-term portion
 
$
4,723

 
$
48



11




The following table sets forth the Company’s weighted-average remaining lease terms and discount rates as of March 31, 2020:
 
Weighted-average Remaining Lease Terms and Discount Rates
Weighted-average remaining lease terms (years):
 
Operating leases
4.27

Finance leases
5.50

 
 
Weighted-average discount rates:
 
Operating leases
4.41
%
Finance leases
3.06
%


Note 6 — Intangible Assets, Net

The following table sets forth the composition of the Company’s intangible assets, net as of March 31, 2020 and December 31, 2019:
 
March 31, 2020
(in thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Trademarks and domain names
$
35,381

 
$
(18,266
)
 
$
17,115

Customer relationships
15,183

 
(10,621
)
 
4,562

Software
19,537

 
(14,269
)
 
5,268

Total intangible assets, net
$
70,101

 
$
(43,156
)
 
$
26,945

 
December 31, 2019
(in thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Trademarks and domain names
$
35,602

 
$
(17,423
)
 
$
18,179

Customer relationships
15,248

 
(10,081
)
 
5,167

Software
19,561

 
(13,602
)
 
5,959

Total intangible assets, net
$
70,411

 
$
(41,106
)
 
$
29,305



Amortization expense was $2.2 million and $2.6 million for the three months ended March 31, 2020 and 2019, respectively.

The following table sets forth the Company’s annual future amortization expense on intangible assets for the next five years and thereafter as of March 31, 2020:
(in thousands)
 
Amortization
Years Ending December 31,
 
Expense
Remaining in 2020
 
$
6,349

2021
 
7,058

2022
 
4,120

2023
 
2,723

2024
 
2,160

Thereafter
 
4,535

Total amortization expense
 
$
26,945




12




Note 7 — Goodwill

The following table sets forth the change in the carrying amount of the Company’s goodwill for the three months ended March 31, 2020:
(in thousands)
Goodwill
Balance as of January 1, 2020
$
156,687

Foreign currency translation adjustment
(994
)
Balance as of March 31, 2020
$
155,693



Note 8 — Accrued Liabilities

The following table sets forth the composition of the Company’s accrued liabilities as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Accrued broadcaster fees, net of breakage
$
5,994

 
$
5,350

Accrued professional fees
2,551

 
1,889

Accrued employee-related costs
2,710

 
4,803

Accrued service providers
337

 
940

Accrued advertising
1,472

 
2,315

Accrued current tax payable
717

 
1,209

Accrued value-added, sales, use and other taxes
1,691

 
1,472

Contingent consideration
917

 

Other accrued expenses
2,526

 
2,112

Total accrued liabilities
$
18,915

 
$
20,090



Note 9 — Debt

The following table sets forth the composition of the Company’s debt as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Term loan facility
$
33,250

 
$
34,125

Less: Debt discount, net
(174
)
 
(192
)
Less: Debt issuance costs, net
(53
)
 
(58
)
Net carrying amount
33,023

 
33,875

Less: Current portion
3,500

 
3,500

Long-term debt, net
$
29,523

 
$
30,375



Credit Facilities

For the three months ended March 31, 2020, the weighted-average interest rate on the Company’s term loan facility amounted to 3.69%, and the unused commitment fee on the Company’s revolving credit facility was 0.25% per annum. There were no outstanding borrowings under the Company’s revolving credit facility as of March 31, 2020.

The Company was in compliance with its debt covenants as of March 31, 2020.


13




Scheduled Principal Payments

The following table sets forth the Company’s minimum future principal payments under the credit facilities as of March 31, 2020:
(in thousands)
 
Minimum
Years Ending December 31,
 
Principal Payments
Remaining in 2020
 
$
2,625

2021
 
3,500

2022
 
27,125

Total minimum principal payments
 
$
33,250



Note 10— Commitments and Contingencies

Cloud Data Storage

The Company stores a portion of its user and business data using Amazon Web Services in the U.S. with a minimum commitment agreement that expires in 2021, and a majority of its user and business data in the Google Cloud Platform in Germany under a non-cancelable minimum commitment agreement that expires in 2023. 

The following table sets forth the minimum future commitment payments under cloud data storage contracts as of March 31, 2020:
 
 
Minimum
Commitment
Payments
(in thousands)
 
Years Ending December 31,
 
Remaining in 2020
 
$
3,814

2021
 
6,862

2022
 
1,023

2023
 
1,125

Total minimum commitment payments
 
$
12,824



Litigation

From time to time, the Company is party to certain legal proceedings that arise in the ordinary course of, and are incidental to, its business. The Company operates its business online, which is subject to extensive regulation by U.S. federal and state and foreign governments. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s consolidated financial position, liquidity or results of operations in any future reporting periods.

Note 11— Stockholders’ Equity

Tax Benefits Preservation Plan

In connection with the execution of the Merger Agreement, the Company entered into an amendment to its Tax Benefits Preservation Plan to render it inapplicable to the Merger Agreement, the execution thereof and the performance or consummation of the transactions contemplated thereby, including, without limitation, the Merger.


14




Stock-based Compensation Expense

The following table sets forth the allocation of stock-based compensation expense in the consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Sales and marketing
$
124

 
$
70

Product development and content
1,928

 
1,500

General and administrative
1,133

 
855

Total stock-based compensation expense
$
3,185

 
$
2,425



As of March 31, 2020, there was $0.1 million, $14.0 million and $3.0 million of total unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average vesting period of 0.3 years, 1.4 years and 1.9 years for the Company’s stock options, restricted stock awards (“RSAs”) and performance share units (“PSUs”), respectively.

Stock Options

Stock-based compensation expense for stock options was estimated on the date of grant and amortized on a straight-line basis over the requisite service period based on their fair value. The fair value of stock options was estimated on the grant date using the Black-Scholes option pricing model, based on weighted-average assumptions. Stock options generally vest over a three-year period with 33% vesting at the end of year one and the remaining vesting annually thereafter. The Company has not awarded any stock options since November 2017.

The following table sets forth the Company’s stock options activity for the three months ended March 31, 2020:
 
 
Number of Stock Options
 
Weighted-
average
Exercise Price
 
Weighted-
average
Remaining
Contractual Life
(Years)
 
Aggregate Intrinsic Value
(in thousands, except share and per share data)
Stock Options
 
 
 
 
Outstanding as of January 1, 2020
 
3,680,146

 
$
3.60

 
 
 
 

Exercised
 
(162,841
)
 
3.47

 
 
 
 

Forfeited or expired
 
(85,000
)
 
3.65

 
 
 
 

Outstanding as of March 31, 2020
 
3,432,305

 
$
3.61

 
4.8
 
$
7,791

Exercisable as of March 31, 2020
 
3,333,817

 
$
3.60

 
4.7
 
$
7,607



The total intrinsic values of stock options exercised during the three months ended March 31, 2020 and 2019 were $0.4 million and $0.2 million, respectively. The Company recorded stock-based compensation expense related to its stock options of $0.2 million and $0.4 million and for the three months ended March 31, 2020 and 2019, respectively.

Restricted Stock Awards

Stock-based compensation expense for RSAs is recognized on a straight-line basis over the requisite service period. RSAs generally vest over a three-year period with 33% vesting at the end of year one and the remaining vesting annually thereafter.


15




The following table sets forth the Company’s RSA activity for the three months ended March 31, 2020:
 
 
Number of
 
 
 
 
Restricted Stock
 
Weighted-average
Restricted Stock Awards
 
Awards
 
Stock Price
Outstanding as of January 1, 2020
 
4,036,398

 
$
4.85

Granted
 
620,277

 
5.51

Vested
 
(295,389
)
 
5.18

Forfeited or expired
 
(112,723
)
 
5.57

Outstanding as of March 31, 2020
 
4,248,563

 
$
4.90



Shares are forfeited if not vested within three years from the date of grant. The Company recorded stock-based compensation expense related to its RSAs of $2.5 million and $1.9 million for the three months ended March 31, 2020 and 2019, respectively.

Performance Share Units

The Company began granting PSUs to certain employees in April 2018. PSUs are based on a relative total shareholder return (“TSR”) metric over a performance period spanning three years from the grant date of the PSU. PSUs will vest at the end of the performance period and will be paid immediately in shares of common stock. Stock-based compensation expense for PSUs is estimated on the date of grant and amortized on a straight-line basis over the performance period. PSUs are forfeited if the participant is no longer employed on the third anniversary of the grant date, except in the event of an involuntary termination, death, disability or change in control. PSU share payouts range from a threshold of 33% to a maximum of 170% based on the relative ranking of the Company’s TSR as compared to the TSR of the companies in the Russell 2000 peer group. The PSU award stipulates certain limitations to the payout in the event the payout reaches a defined ceiling level or the Company’s TSR is negative.

The following table sets forth the Company’s PSU activity for the three months ended March 31, 2020:
 
 
Number of
 
 
 
 
Performance Share
 
Weighted-average
Performance Share Units
 
Units
 
Stock Price
Outstanding as of January 1, 2020
 
1,086,100

 
$
4.34

Granted
 
60,000

 
6.61

Outstanding as of March 31, 2020
 
1,146,100

 
$
4.46



The Company recorded stock-based compensation expense related to its PSUs of $0.4 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

Note 12— Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Certain of the Company’s foreign operations expose it to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of its functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain liabilities in terms of its functional currency, the U.S. dollar.


16




Interest Rate Risk Management

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During 2020 and 2019, such derivatives were used to hedge the variable cash flows associated with the Company’s existing variable-rate debt.
 
Prior to March 5, 2020, the Company’s interest rate derivatives were designated and qualified as cash flow hedges of interest rate risk, where the gain or loss on the derivative was recorded in accumulated other comprehensive income or loss and subsequently reclassified into interest expense in the same period that the hedged transaction affected earnings. Gains and losses on the derivative that represented hedge components excluded from the assessment of effectiveness were recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components was presented in interest expense. Amounts reported in accumulated other comprehensive income or loss related to derivatives were reclassified to interest expense as interest payments were made on the Company’s variable-rate debt.

On March 5, 2020, given the potential for changes in the Company’s future expected interest payments that were hedged by these interest rate derivatives as a result of the Merger Agreement, such derivatives no longer qualified as cash flow hedges and were dedesignated as such. Following this dedesignation, all changes in the fair values of the Company’s interest rate derivatives are recognized as a component of interest expense in the consolidated statements of operations and comprehensive (loss) income. The cumulative remaining unrealized gains at the dedesignation date that were previously recognized in accumulated other comprehensive loss will be amortized to interest expense in the consolidated statements of operations and comprehensive (loss) income over the remaining contractual terms for the Company’s interest rate derivatives.

The following table sets forth the Company’s outstanding interest rate derivatives that were not designated as a hedging instrument of interest rate risk as of March 31, 2020:
(in thousands)
 
Number of Instruments
 
At Inception Notional
 
As of March 31, 2020 Notional
 
Weighted-average
Maturity Date
(Years)
Interest Rate Derivatives
 
 
 
 
Interest rate swaps
 
2
 
$57,185
 
$22,560
 
1.76
Interest rate cap
 
1
 
$15,000
 
$10,690
 
0.47


Foreign Exchange Risk Management

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the U.S. dollar to euro exchange rate. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the U.S. dollar to euro forward exchange rates in effect upon entering into the instrument. The Company designates these derivatives as cash flow hedges of foreign exchange risks.

For derivatives that are designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in other comprehensive income (loss) and subsequently reclassified in the period that the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that an additional $0.6 million will be reclassified as a decrease to interest expense.

The following table sets forth the Company’s outstanding foreign currency derivatives that were designated as cash flow hedges of foreign exchange risk as of March 31, 2020:
(in thousands)
 
Number of Instruments
 
At Inception Notional
 
As of March 31, 2020 Notional
 
Weighted-average
Maturity Date
(Years)
Foreign Currency Derivative
 
 
 
 
Cross-currency swap
 
1
 
35,963
 
$39,750
 
2.41
 
 
 
 
(amortizing to €35,058 as of March 31, 2020)
 
(amortizing to $38,750 as of March 31, 2020)
 
 

17




The following table sets forth the effect of the Company’s cash flow hedge accounting on its other comprehensive loss for the three months ended March 31, 2020 and 2019:
(in thousands)
 
 
 
 
Location of Loss (Gain) Reclassified from Other Comprehensive Loss into Income or Loss
 
Amount of Loss (Gain) Reclassified from Other Comprehensive Loss into
 Income or Loss

 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Interest expense
 
$
14

 
$
(53
)
Interest expense on foreign currency transactions
 
(122
)
 
(203
)
Foreign currency transactions
 
(763
)
 
(866
)
Total gain reclassified
 
$
(871
)
 
$
(1,122
)
(in thousands)
 
Amount of (Loss) Gain Recognized in Other Comprehensive Loss from Derivatives
Derivatives in Cash Flow Hedging Relationships
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Interest rate products
 
$
(583
)
 
$
(61
)
Cross-currency swap
 
1,859

 
1,275

Total unrealized gain
 
$
1,276

 
$
1,214


The following table sets forth the effect of the Company’s derivative financial instruments on its consolidated statements of operations for the three months ended March 31, 2020 and 2019:
 
Interest Expense
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Total amounts of interest expense presented in the consolidated statements of operations
$
(396
)
 
$
(403
)
Loss on derivatives not designated as a hedging instrument:
 
 
 
Amount of loss related to changes in fair values of interest rate derivatives not designated as a hedging instrument
$
(171
)
 
$

 
 
 
 
Gain on cash flow hedging relationships:
 
 
 
Amount of gain reclassified from accumulated other comprehensive loss into income or loss
$
(125
)
 
$
(256
)
Amount of loss reclassified from accumulated other comprehensive loss into income or loss as a result of a forecasted transaction being no longer probable of occurring
$
17

 
$

 
Foreign Currency Transactions
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Total amounts of loss on foreign currency transactions presented in the consolidated statements of operations
$
(7
)
 
$
(65
)
Gain on cash flow hedging relationships:
 
 
 
Amount of gain reclassified from accumulated other comprehensive loss into income or loss
$
(763
)
 
$
(867
)



18




Fair Value of Derivative Financial Instruments

The following table sets forth the fair value of the Company’s derivative financial instruments, as well as their classification on the consolidated balance sheets, as of March 31, 2020 and December 31, 2019:
 
 
 
 
Fair Value of Derivative Financial Instruments
 
 
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
(in thousands)
 
Balance Sheet Location
 
Fair Value
 
Fair Value
 
Fair Value
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
Accrued liabilities
 
$

 
$

 
$
(288
)
 
$

Interest rate products
 
Long-term derivative liabilities
 

 

 
(477
)
 

 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
Prepaid expenses and other current assets / Accrued liabilities
 

 
15

 

 
(12
)
Interest rate products
 
Long-term derivative liabilities
 

 

 

 
(9
)
Cross-currency swap
 
Prepaid expenses and other current assets
 
655

 
568

 

 

Cross-currency swap
 
Other assets / Long-term derivative liabilities
 
162

 

 

 
(1,442
)
Total derivative financial instruments
 
 
 
$
817

 
$
583

 
$
(765
)
 
$
(1,463
)


The fair value of the Company’s derivative financial instruments is determined using widely-accepted valuation techniques, including a discounted cash flows analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the interest rate swaps and the cross-currency swap are determined using the market-standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair value of the interest rate cap is determined using the market-standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect both its non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of March 31, 2020 and 2019 were classified as Level 2 within the fair value hierarchy.

19




As of March 31, 2020, the fair value of the Company’s derivatives was in a net liability position of $0.8 million for its contracts, which included accrued interest but excluded any adjustment for non-performance risk. As of March 31, 2020, the Company had not posted any collateral related to these contracts. If the Company had breached any credit-risk related provisions as of March 31, 2020, it could have been required to settle its obligations under the contracts at their termination value of $0.8 million.
Note 13— Revenue

Disaggregation of Revenue

The following table sets forth the Company’s revenue disaggregated by revenue source for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
(in thousands)
$
 
%
 
$
 
%
User pay revenue:
 
 

 
 
 

Video
$
28,633

 
52.0
%
 
$
20,229

 
40.9
%
Subscription and other in-app products
14,395

 
26.1
%
 
15,596

 
31.5
%
Total user pay revenue
43,028

 
78.1
%
 
35,825

 
72.4
%
Advertising revenue
12,038

 
21.9
%
 
13,688

 
27.6
%
Total revenue
$
55,066

 
100.0
%
 
$
49,513

 
100.0
%

Significant Customers

During the three months ended March 31, 2020 and 2019, three customers, all of which were advertising aggregators or payment processors representing thousands of advertisers, comprised 73% and 61% of total revenue, respectively.

Contract Assets and Contract Liabilities

The following table sets forth the composition of the Company’s contract assets and liabilities as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Assets:
 
 
 
Accounts receivable
$
24,476

 
$
25,503

Total contract assets
$
24,476

 
$
25,503

Liabilities:
 

 
 
Deferred revenue
$
3,563

 
$
3,884

Total contract liabilities
$
3,563

 
$
3,884



The Company’s deferred revenue balance for the three months ended March 31, 2020 increased by $42.5 million due to consideration received in advance of providing services to subscription and in-app purchases’ customers, including in-app purchases related to video. This amount was offset by $42.8 million of revenue recognized from deferred revenue due to performance obligations satisfied during the three months ended March 31, 2020.