Attached files
file | filename |
---|---|
EX-4.2 - EXHIBIT 4.2 - Ancestry.com Inc. | c07281exv4w2.htm |
EX-4.1 - EXHIBIT 4.1 - Ancestry.com Inc. | c07281exv4w1.htm |
EX-31.2 - EXHIBIT 31.2 - Ancestry.com Inc. | c07281exv31w2.htm |
EX-10.6 - EXHIBIT 10.6 - Ancestry.com Inc. | c07281exv10w6.htm |
EX-10.5 - EXHIBIT 10.5 - Ancestry.com Inc. | c07281exv10w5.htm |
EX-10.7 - EXHIBIT 10.7 - Ancestry.com Inc. | c07281exv10w7.htm |
EX-31.1 - EXHIBIT 31.1 - Ancestry.com Inc. | c07281exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - Ancestry.com Inc. | c07281exv32w1.htm |
EX-10.3 - EXHIBIT 10.3 - Ancestry.com Inc. | c07281exv10w3.htm |
EX-10.1 - EXHIBIT 10.1 - Ancestry.com Inc. | c07281exv10w1.htm |
EX-10.2 - EXHIBIT 10.2 - Ancestry.com Inc. | c07281exv10w2.htm |
EX-10.4 - EXHIBIT 10.4 - Ancestry.com Inc. | c07281exv10w4.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34518
Ancestry.com Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
26-1235962 (I.R.S. Employer Identification Number) |
|
360 West 4800 North Provo, Utah (Address of principal executive offices) |
84604 (Zip Code) |
(801) 705-7000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 þ
No o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o
No o
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. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No þ
As of October 19, 2010, there were 44,518,170 shares of the registrants common stock, par
value $0.001, outstanding.
Ancestry.com Inc.
Table of Contents
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6 | ||||||||
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26 | ||||||||
27 | ||||||||
27 | ||||||||
43 | ||||||||
44 | ||||||||
45 | ||||||||
46 | ||||||||
Exhibit 4.1 | ||||||||
Exhibit 4.2 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 10.3 | ||||||||
Exhibit 10.4 | ||||||||
Exhibit 10.5 | ||||||||
Exhibit 10.6 | ||||||||
Exhibit 10.7 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ANCESTRY.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | ||||||||
(In thousands) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 64,085 | $ | 66,941 | ||||
Restricted cash |
2,441 | 2,181 | ||||||
Short-term investments |
16,004 | 33,331 | ||||||
Accounts receivable, net of allowances of $355 and
$472 at September 30, 2010 and December 31, 2009,
respectively |
4,398 | 5,860 | ||||||
Income tax receivable |
2,912 | 2,017 | ||||||
Deferred income taxes |
1,572 | 8,797 | ||||||
Prepaid expenses and other current assets |
4,972 | 5,380 | ||||||
Total current assets |
96,384 | 124,507 | ||||||
Property and equipment, net |
19,378 | 19,430 | ||||||
Content database costs, net |
55,301 | 49,650 | ||||||
Intangible assets, net |
33,107 | 41,484 | ||||||
Goodwill |
290,356 | 285,466 | ||||||
Other assets |
1,402 | 2,811 | ||||||
Total assets |
$ | 495,928 | $ | 523,348 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,857 | $ | 6,877 | ||||
Accrued expenses |
27,401 | 18,850 | ||||||
Escrow liability |
2,029 | 1,763 | ||||||
Deferred revenues |
90,583 | 69,711 | ||||||
Current portion of long-term debt |
| 28,416 | ||||||
Total current liabilities |
128,870 | 125,617 | ||||||
Long-term debt, less current portion |
| 71,609 | ||||||
Deferred income taxes |
24,728 | 30,117 | ||||||
Other long-term liabilities |
1,834 | 1,115 | ||||||
Total liabilities |
155,432 | 228,458 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.001 par value; 5,000 shares
authorized; no shares issued and outstanding |
| | ||||||
Common stock, $0.001 par value; 175,000 shares
authorized; 44,402 and 42,416 shares issued and
outstanding at September 30, 2010 and December 31,
2009, respectively |
44 | 42 | ||||||
Additional paid-in capital |
293,263 | 272,513 | ||||||
Accumulated other comprehensive income (loss) |
519 | (41 | ) | |||||
Retained earnings |
46,670 | 22,376 | ||||||
Total stockholders equity |
340,496 | 294,890 | ||||||
Total liabilities and stockholders equity |
$ | 495,928 | $ | 523,348 | ||||
See accompanying notes to condensed consolidated financial statements
3
Table of Contents
ANCESTRY.COM INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenues: |
||||||||||||||||
Subscription revenues |
$ | 74,239 | $ | 52,603 | $ | 204,343 | $ | 152,506 | ||||||||
Product and other revenues |
5,076 | 4,384 | 13,853 | 12,287 | ||||||||||||
Total revenues |
79,315 | 56,987 | 218,196 | 164,793 | ||||||||||||
Costs of revenues: |
||||||||||||||||
Cost of subscription revenues |
11,267 | 10,033 | 33,996 | 29,755 | ||||||||||||
Cost of product and other revenues |
1,155 | 1,389 | 3,929 | 4,213 | ||||||||||||
Total cost of revenues |
12,422 | 11,422 | 37,925 | 33,968 | ||||||||||||
Gross profit |
66,893 | 45,565 | 180,271 | 130,825 | ||||||||||||
Operating expenses: |
||||||||||||||||
Technology and development |
10,528 | 9,142 | 30,447 | 26,690 | ||||||||||||
Marketing and advertising |
24,125 | 14,240 | 71,061 | 44,226 | ||||||||||||
General and administrative |
9,141 | 10,229 | 24,915 | 24,569 | ||||||||||||
Amortization of acquired intangible assets |
3,791 | 4,052 | 11,149 | 12,165 | ||||||||||||
Total operating expenses |
47,585 | 37,663 | 137,572 | 107,650 | ||||||||||||
Income from operations |
19,308 | 7,902 | 42,699 | 23,175 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(2,187 | ) | (1,428 | ) | (4,896 | ) | (4,784 | ) | ||||||||
Interest income |
201 | 48 | 340 | 746 | ||||||||||||
Other income, net |
401 | 4 | 398 | 14 | ||||||||||||
Income before income taxes |
17,723 | 6,526 | 38,541 | 19,151 | ||||||||||||
Income tax expense |
(5,914 | ) | (2,485 | ) | (14,247 | ) | (6,927 | ) | ||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Net income per common share: |
||||||||||||||||
Basic |
$ | 0.27 | $ | 0.11 | $ | 0.56 | $ | 0.32 | ||||||||
Diluted |
$ | 0.24 | $ | 0.10 | $ | 0.50 | $ | 0.30 | ||||||||
Weighted average common shares outstanding |
||||||||||||||||
Basic |
43,984 | 38,327 | 43,075 | 38,283 | ||||||||||||
Diluted |
48,774 | 41,059 | 48,186 | 40,096 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
4
Table of Contents
ANCESTRY.COM INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Operating activities: |
||||||||||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||||||
Depreciation |
2,751 | 2,762 | 8,355 | 8,092 | ||||||||||||
Amortization of content |
1,900 | 1,753 | 5,564 | 5,182 | ||||||||||||
Amortization of acquired intangible assets |
3,791 | 4,052 | 11,149 | 12,164 | ||||||||||||
Amortization of deferred financing costs |
1,539 | 220 | 2,368 | 613 | ||||||||||||
Deferred income taxes |
3,627 | 615 | 990 | (1,271 | ) | |||||||||||
Stock-based compensation expense |
1,275 | 1,462 | 3,541 | 4,265 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
561 | 1,011 | 1,496 | 974 | ||||||||||||
Restricted cash |
(94 | ) | 85 | (144 | ) | 888 | ||||||||||
Other assets |
(1,343 | ) | (1,324 | ) | 627 | (2,288 | ) | |||||||||
Income tax receivable |
(2,439 | ) | (201 | ) | (895 | ) | 2,683 | |||||||||
Accounts payable and accrued expenses |
9,501 | (524 | ) | 17,569 | (459 | ) | ||||||||||
Excess tax benefits from stock-based
compensation |
(4,071 | ) | (6 | ) | (7,641 | ) | (29 | ) | ||||||||
Deferred revenues |
475 | 26 | 19,563 | 8,672 | ||||||||||||
Other long-term liabilities |
719 | | 719 | 26 | ||||||||||||
Net cash provided by operating activities |
30,001 | 13,972 | 87,555 | 51,736 | ||||||||||||
Investing activities: |
||||||||||||||||
Capitalization of content database costs |
(3,393 | ) | (2,183 | ) | (8,534 | ) | (5,855 | ) | ||||||||
Purchases of property and equipment |
(4,269 | ) | (1,415 | ) | (7,897 | ) | (7,566 | ) | ||||||||
Acquisitions of businesses, net of cash acquired |
(8,147 | ) | | (8,147 | ) | | ||||||||||
Purchases of short-term investments |
| | (7,193 | ) | | |||||||||||
Proceeds from sale and maturity of short-term
investments |
14,527 | | 24,564 | | ||||||||||||
Proceeds from settlement of forward contract |
366 | | 366 | | ||||||||||||
Net cash used in investing activities |
(916 | ) | (3,598 | ) | (6,841 | ) | (13,421 | ) | ||||||||
Financing activities: |
||||||||||||||||
Proceeds from exercise of stock options |
4,442 | 5 | 9,514 | 559 | ||||||||||||
Principal payments on debt |
(76,230 | ) | (2,405 | ) | (100,025 | ) | (18,331 | ) | ||||||||
Deferred financing costs from issuance of credit
facility |
(733 | ) | | (733 | ) | | ||||||||||
Excess tax benefits from stock-based compensation |
4,071 | 6 | 7,641 | 29 | ||||||||||||
Repurchase of common stock |
| | | (100 | ) | |||||||||||
Net cash used in financing activities |
(68,450 | ) | (2,394 | ) | (83,603 | ) | (17,843 | ) | ||||||||
Effect of changes in foreign currency exchange
rates on cash and cash equivalents |
33 | | 33 | | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(39,332 | ) | 7,980 | (2,856 | ) | 20,472 | ||||||||||
Cash and cash equivalents at beginning of period |
103,417 | 52,613 | 66,941 | 40,121 | ||||||||||||
Cash and cash equivalents at end of period |
$ | 64,085 | $ | 60,593 | $ | 64,085 | $ | 60,593 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid for interest |
$ | 1,051 | $ | 1,208 | $ | 2,528 | $ | 6,624 | ||||||||
Cash paid for income taxes |
164 | 4,029 | 6,345 | 8,985 | ||||||||||||
Supplemental disclosures of noncash investing and
financing activities: |
||||||||||||||||
Unrealized gain (loss) on short-term investments |
(4 | ) | | 44 | | |||||||||||
Capitalization of stock-based compensation |
3 | 2 | 6 | 3 |
See accompanying notes to condensed consolidated financial statements
5
Table of Contents
ANCESTRY.COM INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. NATURE OF OPERATIONS
Ancestry.com Inc. (the company or Ancestry) is an online family history resource that
derives revenues from providing access to digitized historical records on a subscription basis.
The company also offers other products including software and self-publishing products.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the company and its
wholly owned subsidiaries and a variable interest entity (VIE). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated balance sheet as of September 30, 2010 and the
condensed consolidated statements of operations and condensed consolidated statements of cash
flows for the three and nine months ended September 30, 2010 and 2009 are unaudited. These
unaudited interim condensed consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) on the same basis as the audited
consolidated financial statements and in the opinion of management, reflect all adjustments (all
of which are considered of normal recurring nature) considered necessary to present fairly the
companys financial position, results of its operations and cash flows for the three and nine
months ended September 30, 2010 and 2009. The results of operations for the three and nine months
ended September 30, 2010 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010. These unaudited interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and related
notes included in the companys 2009 Annual Report on Form 10-K (the 2009 Annual Report) filed
with the Securities and Exchange Commission on February 26, 2010.
The preparation of interim condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the amounts reported and
disclosed in the financial statements and accompanying notes. Actual results could differ
materially from these estimates.
Certain prior period amounts have been reclassified to conform to current year presentation.
These reclassifications did not have a significant impact on the condensed consolidated financial
statements.
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued amended standards for
determining whether to consolidate a VIE. These new standards amend the evaluation criteria to
identify the primary beneficiary of a VIE and require ongoing reassessment of whether an
enterprise is the primary beneficiary of the VIE. These standards were effective for the company
beginning in the first quarter of 2010. The company has concluded that it is the primary
beneficiary of a VIE and therefore has consolidated the financial statements of the VIE into the
financial statements of the company. The VIE is not significant to the financial position,
results of operations, or cash flows of the consolidated company. The adoption of the new
standards did not have an impact on the companys consolidated financial position, results of
operations or cash flows.
6
Table of Contents
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, cash equivalents and short-term investments consisted of the following (in thousands):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Cash |
$ | 9,928 | $ | 5,159 | ||||
Cash equivalents: |
||||||||
Money market funds |
54,157 | 61,782 | ||||||
Total cash and cash equivalents |
$ | 64,085 | $ | 66,941 | ||||
Short-term investments: |
||||||||
U.S. agency securities |
$ | 16,004 | $ | 33,331 | ||||
Gross unrealized gains and losses on short-term investments were not significant at
September 30, 2010 and December 31, 2009. As of September 30, 2010, the company had U.S. agency
securities totaling $13.0 million in an unrealized gain position. The company also had U.S.
agency securities totaling $3.0 million in an unrealized loss position, which had been in a loss
position for less than one year, and are not considered to be other than temporary losses. As of
December 31, 2009, all U.S. agency securities were in an unrealized loss position and had been in
a loss position for less than one year. The company designates all short-term investments as
available-for-sale. As of September 30, 2010 and December 31, 2009, the company did not hold any
investments with original maturities greater than one year from the date of purchase.
Cash equivalents and short-term investments are measured at fair value. Fair value is based
on the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. In order to increase
consistency and comparability in fair value measurements, the accounting guidance establishes a
fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair
value into three broad levels. These levels, in order of highest priority to lowest priority, are
described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement
date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but
corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The companys cash equivalents and short-term investments at September 30, 2010 and December
31, 2009 were all classified within Level 1. There were no movements between fair value
measurement levels of the companys cash equivalents and short-term investments during the nine
months ended September 30, 2010.
The carrying amounts reported in the financial statements for accounts receivable and
accounts payable approximate their fair values because of the short-term maturities of these
financial instruments. The carrying value of long-term debt approximated fair values based on
interest rates currently available to the company for debt with similar terms at December 31,
2009. At September 30, 2010, the company had no long-term debt outstanding.
In connection with the acquisition of Genline AB discussed below, the company entered into a
forward contract to purchase 53 million Swedish kronor. The company did not qualify the contract
for hedge accounting and therefore the fair value gains and losses on the contract were recorded
in net income. In July 2010, the forward contract was settled resulting in a gain of $0.4
million.
3. BUSINESS ACQUISITIONS
On July 15, 2010, the company acquired Genline AB (Genline), the owner and operator of the Swedish
family history Web site Genline.se, based in Stockholm, Sweden for $7.2 million in cash
consideration. The Genline acquisition increased the companys presence in the Swedish market and
provides existing customers with access to millions of Swedish records. The acquisition of
Genline was not material to the companys financial position or results of operations.
7
Table of Contents
On August 6, 2010, the company acquired ProGenealogists, Inc. (ProGenealogists), which specializes in
genealogical, forensic and family history research, for $1.1 million in cash consideration. The acquisition of ProGenealogists provides the company with
a genealogy research team for internal projects and allows customers access to expert
genealogists to assist them in their research. The ProGenealogists acquisition was not material
to the companys financial position or results of operations.
4. NET INCOME PER COMMON SHARE
Basic net income per common share is computed using the weighted-average number of
outstanding shares of common stock during the period. Diluted net income per common share is
computed using the weighted-average number of outstanding shares of common stock and, when
dilutive, potential common shares outstanding during the period. Potential common shares consist
primarily of incremental shares issuable upon the assumed exercise of stock-based awards to
purchase common stock using the treasury stock method. The computation of diluted net income per
share for the three months ended September 30, 2010 and 2009 excludes stock-based awards to
acquire 0.5 million and 1.2 million shares, respectively, as their impact was anti-dilutive. The
computation of diluted net income per common share for the nine months ended September 30, 2010
and 2009 excludes stock-based awards to acquire 0.6 million and 2.2 million shares, respectively,
as their impact was anti-dilutive.
A reconciliation of the numerator and the denominator used in the calculation of basic and
diluted net income per common share is as follows (in thousands, except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic net income per common share: |
||||||||||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Shares used in computation: |
||||||||||||||||
Weighted-average common shares
outstanding |
43,984 | 38,327 | 43,075 | 38,283 | ||||||||||||
Basic net income per common share |
$ | 0.27 | $ | 0.11 | $ | 0.56 | $ | 0.32 | ||||||||
Diluted net income per common share: |
||||||||||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Shares used in computation: |
||||||||||||||||
Weighted-average common shares
outstanding |
43,984 | 38,327 | 43,075 | 38,283 | ||||||||||||
Dilutive stock-based awards |
4,790 | 2,732 | 5,111 | 1,813 | ||||||||||||
Weighted-average number of
diluted common shares |
48,774 | 41,059 | 48,186 | 40,096 | ||||||||||||
Diluted net income per common
share |
$ | 0.24 | $ | 0.10 | $ | 0.50 | $ | 0.30 | ||||||||
8
Table of Contents
5. COMPREHENSIVE INCOME
Other comprehensive income consists of changes in unrealized gains and losses on available-for-sale
securities and changes in foreign currency translation adjustments. The components of
comprehensive income were as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Other comprehensive income: |
||||||||||||||||
Changes in unrealized
gain (loss) on available for
sale securities, net |
(4 | ) | | 44 | | |||||||||||
Changes in foreign
currency translation
adjustments |
516 | | 516 | | ||||||||||||
Comprehensive income |
$ | 12,321 | $ | 4,041 | $ | 24,854 | $ | 12,224 | ||||||||
6. LONG-TERM DEBT
On September 9, 2010, the company terminated and paid in full the remaining $76.2 million
of debt then outstanding. On December 5, 2007, the company entered into a secured credit facility with a number of financial
institutions for borrowings of up to $150.0 million. These borrowings included a term loan of
$140.0 million (the Term Loan) and a revolving commitment of up to $10.0 million (the Revolving Loans), both of which
were to mature on December 5, 2012. No amounts were
outstanding under the Revolving Loans as of December 31, 2009 or during 2010. Debt financing costs of $3.9 million
were incurred in connection with the Term Loan. These costs were deferred in other long-term assets
on the balance sheet and were amortized to interest expense over the period of the Term Loan. The remaining unamortized debt financing costs of $1.3 million were charged to interest expense upon termination.
In connection with the payoff of the Term Loan, on September 9, 2010 the company entered into
a three-year $100.0 million principal amount senior secured revolving credit facility with Bank of
America, N.A., as administrative agent, and certain other financial institutions (the Credit Facility). The Credit Facility
includes a $5.0 million sublimit for the issuance of letters of credit and a $7.0 million sublimit for
swingline loans and has a maturity date of
September 9, 2013. The Credit Facility is secured by a first-priority security interest in all of the capital stock
of the companys wholly-owned domestic subsidiaries and 65% of the capital stock of the
companys material foreign subsidiaries as well as the currently owned and hereafter acquired real and personal property assets of the company and its wholly-owned domestic subsidiaries. Borrowings under the Credit Facility may be used to finance the
on-going working capital needs of the company and its subsidiaries and for general corporate
purposes, including permitted business acquisitions and capital expenditures. As of September 30,
2010, the company has not borrowed against the Credit Facility.
The Credit Facility contains financial and other covenants, including but not limited to,
limitations on indebtedness, liens, mergers, asset sales, dividends and other payments in respect
of equity interests, capital expenditures, investments and affiliate transactions (subject to qualifications and baskets), as well as the maintenance of a minimum
fixed charge coverage ratio and a maximum senior secured leverage ratio. A violation of these
covenants or the occurrence of certain other events could result in a default permitting the
termination of the lenders commitments under the Credit Facility and/or the acceleration of any
loan amounts then outstanding. The company was in compliance with all financial and other covenants
at September 30, 2010.
Under the terms of the Credit Facility, the company may elect that the loans comprising each
borrowing bear interest generally at a rate equal to (i) LIBOR plus a margin that fluctuates
between 1.50% and 2.00%, as determined by the companys Consolidated Leverage Ratio (as defined in
the Credit Facility) as set forth in the companys most recently delivered compliance certificate
or (ii) the Base Rate (defined as a rate equal to the highest of (a) the Federal Funds Rate plus
0.50%, (b) the Bank of America prime rate and (c) the Eurodollar rate plus 1.00%), plus a margin
that fluctuates between 0.50% and 1.00%, as determined by the companys Consolidated Leverage Ratio
as set forth in its most recently delivered compliance certificate (the Base Rate Applicable
Margin). Each swingline loan will bear interest at the Base Rate plus the Base Rate Applicable
Margin. In addition, the company will pay a commitment fee of 0.40% on any unused portions of the
facility and a letter of credit fee that fluctuates between 1.50% and 2.00%, as determined by the
companys Consolidated Leverage Ratio as set forth in its most recently delivered compliance
certificate.
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Debt financing costs of $0.7 million were incurred in connection with the Credit Facility.
These costs are deferred in other long-term assets on the balance sheet and are being amortized to interest expense over the period
of the Credit Facility. At September 30, 2010, the unamortized debt financing costs were $0.7
million.
7. STOCK-BASED AWARDS
In July 2009, the Board of Directors approved the 2009 Stock Incentive Plan (the 2009
Plan), which provides for the grant of stock options and other stock-based awards, including
restricted stock units, to employees, directors and consultants. As of September 30, 2010,
2,957,138 stock-based awards were available to be granted under the 2009 Plan. The company has
also granted stock options under previously approved plans: the 1998 Stock Option Plan (the 1998
Plan), the Executive Stock Plan (ESP), the 2004 Stock Option Plan (the 2004 Plan) and the
Generations Holding, Inc. Stock Purchase and Option Plan (the 2008 Plan). The company does not
intend to grant additional stock awards under the 1998 Plan, ESP, 2004 Plan or 2008 Plan.
Stock Options
Stock option awards granted generally vest over four years and have a term not greater than
ten years from the date of grant. A summary of stock option activity of all the plans for the
nine months ended September 30, 2010 is as follows:
Weighted | ||||||||
Average | ||||||||
Number of | Exercise | |||||||
Shares | Price | |||||||
Outstanding at December 31, 2009 |
10,373,290 | $ | 5.29 | |||||
Granted |
417,250 | 17.99 | ||||||
Exercised |
(1,985,136 | ) | 4.82 | |||||
Canceled |
(198,653 | ) | 6.16 | |||||
Outstanding at September 30, 2010 |
8,606,751 | 5.99 | ||||||
Exercisable at September 30, 2010 |
5,710,713 | 4.96 | ||||||
Vested and expected to vest |
8,512,176 | 5.96 | ||||||
As of September 30, 2010, the company had $8.1 million of total unrecognized
compensation expense, net of estimated forfeitures, related to stock options. The unrecognized
compensation expense is expected to be recognized over a weighted average remaining period of 2.5
years. The weighted average remaining contractual life of options outstanding at September 30,
2010 was 6.6 years. The total intrinsic values of options outstanding and options exercisable as
of September 30, 2010 were $144.3 million and $101.6 million, respectively. The total intrinsic
value of options exercised during the nine months ended September 30, 2010 was $27.0 million.
The company estimates the fair value of each option on the date of grant using the
Black-Scholes option-pricing model. The weighted average grant date fair values of options
granted during the nine months ended September 30, 2010 and 2009 were $6.00 and $2.99,
respectively. The following weighted average assumptions were used to value option grants.
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Expected volatility |
40 | % | 50 | % | ||||
Expected term (in years) |
4.0 | 4.2 | ||||||
Weighted average risk-free interest rate |
1.7 | % | 1.9 | % | ||||
Weighted average fair value of the underlying common stock |
$ | 17.99 | $ | 6.80 | ||||
Expected dividends |
| |
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Restricted Stock Units
During the nine months ended September 30, 2010, the company also issued restricted stock
units representing the right to receive one share of the companys common stock under the 2009
Plan. Restricted stock unit awards generally vest over four years. The following table summarizes
restricted stock unit activity.
Weighted | ||||||||
Average | ||||||||
Number of | Grant Date | |||||||
Units | Fair Value | |||||||
Restricted stock units outstanding at December 31, 2009 |
| $ | | |||||
Granted |
456,198 | 17.87 | ||||||
Vested |
(450 | ) | 18.20 | |||||
Forfeited |
(6,167 | ) | 16.40 | |||||
Restricted stock units outstanding at September 30, 2010 |
449,581 | 17.89 | ||||||
As of September 30, 2010 the company had $6.2 million of total unrecognized
compensation expense, net of estimated forfeitures related to restricted stock units. The
unrecognized compensation expense is expected to be recognized over a weighted average period of
3.8 years.
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense included in the statement of
operations (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cost of subscription revenues |
$ | 57 | $ | 17 | $ | 134 | $ | 78 | ||||||||
Technology and development |
550 | 388 | 1,437 | 1,223 | ||||||||||||
Marketing and advertising |
204 | 104 | 390 | 273 | ||||||||||||
General and administrative |
464 | 953 | 1,580 | 2,691 | ||||||||||||
Total stock-based compensation expense |
$ | 1,275 | $ | 1,462 | $ | 3,541 | $ | 4,265 | ||||||||
8. INCOME TAXES
The company is subject to income taxes in the U.S. and foreign jurisdictions. Significant
judgment is required in evaluating the companys uncertain tax positions and determining its
provision for income taxes. The companys total gross unrecognized tax benefits as of September
30, 2010 and December 31, 2009 were $1.0 million and $0.6 million, respectively. The gross
uncertain tax positions, if recognized by the company, would affect the companys effective
income tax rate.
9. COMMITMENTS AND CONTINGENCIES
From time to time, the company is a party to or otherwise involved in legal proceedings or
other legal matters that arise in the ordinary course of business or otherwise. While the
companys management does not believe that any pending legal claim or proceeding will be resolved
in a manner that would have a material adverse effect on the companys business, the company
cannot assure the ultimate outcome of any legal proceeding or contingency in which the company is
or may become involved.
10. SUBSEQUENT EVENTS
On
September 22, 2010, the company entered into an agreement
to acquire iArchives, Inc., a leading digitization services provider that also
operates Footnote.com, a leading American history Web site
and on October 20, 2010, the company completed the acquisition.
The purchase price was approximately $31.6 million, consisting of the issuance
of approximately 1.022 million shares of Ancestry.com common stock valued at approximately $24.6 million, based on the closing price
on October 20, 2010, and approximately $7.0 million of cash consideration. The acquisition is expected to
provide Ancestry.com with a complementary consumer brand, expanded content offerings, and
enhanced digitization and image-viewing technologies.
The company announced a share repurchase program, under
which the company may spend up to $25.0 million to repurchase shares of its
common stock, depending on market conditions, the price of the companys common stock
and other factors. The share repurchase program is intended in part to offset the issuance of common stock as a
result of the iArchives acquisition.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements relating to future
events and future performance. All statements other than those that are purely historical may be
forward-looking statements. We may, in some cases, use words such as project, believe,
anticipate, continue, plan, expect, estimate, intend, should, would, could,
potentially, will or may, or other words that convey uncertainty of future events or
outcomes to identify these forward-looking statements. Forward-looking statements in this
Quarterly Report include statements about:
| our future financial performance, including our revenues, cost of revenues, operating expenses and ability to sustain profitability; | |
| our rate of revenue and expense growth; | |
| the pool of our potential subscribers; | |
| our ability to attract and retain subscribers; | |
| our ability to manage growth; | |
| our ability to generate additional revenues on a cost-effective basis; | |
| our ability to acquire content and make it available online; | |
| our ability to enhance the subscribers experience and provide value; | |
| our success with respect to any future business acquisitions; | |
| our international expansion plans; | |
| our ability to adequately manage costs and control margins and trends; | |
| our investments in technology and the success of our promotional programs and new products; | |
| our development of brand awareness; | |
| our ability to retain and hire necessary employees; | |
| our competitive position; | |
| our liquidity and working capital requirements and the availability of cash and credit; | |
| the seasonality of our business; | |
| the impact of external market forces; and | |
| the impact of claims or litigation. |
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Although we believe that the assumptions underlying the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance or achievements.
There are a number of important factors that could cause actual results to differ materially from
the results anticipated by these forward-looking statements. These important factors include
those that we discuss in this Quarterly Report under the captions Managements Discussion and
Analysis of Financial Condition and Results of Operations, Risk Factors and elsewhere. You
should read these factors and the other cautionary statements made in this Quarterly Report as
being applicable to all related forward-looking statements wherever they appear in this Quarterly
Report. If one or more of these factors materialize, or if any underlying assumptions prove
incorrect, our actual results, performance or achievements may vary materially from any future
results, performance or achievements expressed or implied by these forward-looking statements.
All subsequent written or spoken forward-looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their entirety by these cautionary
statements. The forward-looking statements included in this Quarterly Report are made only as of
the date of this Quarterly Report, and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
Overview
Ancestry.com is the worlds largest online family history resource, with nearly 1.4 million
paying subscribers around the world as of September 30, 2010. We have been a leader in the family
history market for over 20 years and have helped pioneer the market for online family history
research. We believe that most people have a fundamental desire to understand who they are and
from where they came, and that anyone interested in discovering, preserving and sharing their
family history is a potential user of Ancestry.com. We strive to make our service valuable to
individuals ranging from the most committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
The foundation of our service is an extensive and unique collection of billions of
historical records that we have digitized, indexed and put online over the past 14 years. Our
subscribers use our proprietary online platform, extensive digital historical record collection,
and easy-to-use technology to research their family histories, build their family trees,
collaborate with other subscribers, upload their own records and publish and share their stories
with their families. We offer our service on a subscription basis, typically annually or monthly.
These subscribers are our primary source of revenue. We charge each subscriber for their
subscription at the commencement of their subscription period and at each renewal date. Although
monthly subscribers have become an increasing proportion of our subscribers, the annual commitments of a majority of our subscribers enhance managements near-term visibility on our revenues
and provide working capital benefits, which we believe enable us to more effectively manage the
growth of our business. We provide ongoing value to our subscribers by regularly adding new
historical content, enhancing our Web sites with new tools and features and enabling greater
collaboration among our users through the growth of our global community.
Our goal is to remain the leading online resource for family history and to grow our
subscriber base in the United States and around the world by offering a superior value
proposition to anyone interested in learning more about their family history. We have focused on,
and will continue to focus on, retaining our loyal base of existing subscribers, on acquiring new
subscribers and on expanding the market to new consumers. We believe our previous investments in
technology and content have provided us a foundation for a scalable business model that will help
us to increase our margins over the long term and effectively manage our costs as our business
grows. However, we expect to continue to devote substantial resources and funds to improving our
technologies and product offerings and acquiring new and relevant content and talent, and expanding
the awareness of our brand and category through global marketing, any of which may adversely affect our margin
expansion in the near term.
The following discussion and analysis is based upon and should be read in conjunction with
the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report as
well as the Consolidated Financial Statements and the related Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the year ended December 31, 2009 (the 2009 Annual Report).
Recent Developments
Genline Acquisition
On July 15, 2010, we acquired Genline AB, owner and operator of the Swedish family history Web
site Genline.se, for approximately $7.2 million in cash consideration. The Genline acquisition increased our
presence in the Swedish market and provides our customers with access to millions of Swedish
records. The acquisition of Genline was not material to our financial position or results of
operations.
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ProGenealogists Acquisition
On August 6, 2010, we acquired ProGenealogists, Inc., for approximately $1.1 million in cash consideration. ProGenealogists is a leading professional genealogy research firm that specializes in genealogical,
forensic and family history research.
We believe the acquisition of ProGenealogists provides us with a premier
genealogy research team for internal projects and gives our customers access to expert genealogists
to assist them in their research. The ProGenealogists acquisition was not material to our financial
position or results of operations.
New Credit Facility
On September 9, 2010, we terminated and paid in full the $76.2 million outstanding under our
previous credit facility from cash on hand including the proceeds from our initial public offering.
Also on September 9, 2010, in connection with the payoff of the previous credit facility, we
entered into a new three-year $100.0 million principal amount senior secured revolving credit
facility with Bank of America, N.A., as administrative agent, and certain other financial
institutions. The new credit facility includes a $5.0 million sublimit for the issuance of letters
of credit and a $7.0 million sublimit for swingline loans. As of November 1, 2010, we have not drawn any funds
under the new credit facility.
Interest under the new credit facility is variable generally based on LIBOR or the base rate
(defined as the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Bank of America prime rate
and (c) the Eurodollar rate plus 1.00%), plus a margin based on our consolidated leverage ratio.
Each swingline loan will bear interest at the base rate plus a margin.
The new credit facility matures September 9, 2013 and is secured by a first-priority security
interest in all of the capital stock of our wholly owned domestic subsidiaries and 65% of the
capital stock of our material foreign subsidiaries as well as our currently owned and hereafter acquired real and personal property assets, as well as those of our wholly owned
domestic subsidiaries. Borrowings under the new credit facility may be
used to finance our on-going working capital needs and those of our subsidiaries and for
general corporate purposes, including permitted business acquisitions and capital expenditures.
The new credit facility contains financial and other covenants, including but not limited to,
limitations on indebtedness, liens, mergers, asset sales, dividends and other payments in respect
of equity interests, capital expenditures, investments and affiliate transactions (subject to qualifications and baskets), as well as a minimum fixed charge
coverage ratio and a maximum senior secured leverage ratio. A violation of these covenants or the
occurrence of certain other events could result in a default permitting the termination of the
lenders commitments under the credit facility and/or the acceleration of any loan amounts then
outstanding. We were in compliance with all financial and other covenants at September 30, 2010.
Note 6 to our condensed consolidated financial statements describes further the terms of the new credit
facility.
iArchives Acquisition
On September 22, 2010, we entered into an agreement to acquire iArchives, Inc. (iArchives), a
leading digitization service provider that also operates Footnote.com, a leading American history Web site, and on October 20, 2010 we completed the acquisition. The purchase price
was approximately $31.6 million, consisting of the issuance of approximately 1.022 million shares of our common stock (valued at approximately $24.6 million, based on the closing price
on October 20, 2010) and approximately $7.0 million of cash consideration. We believe that the acquisition will provide Ancestry.com with a complementary consumer brand, expanded
content offerings, and enhanced digitization and image-viewing technologies.
Share Repurchase Program
On September 23, 2010, we announced a share repurchase program, under which we may
spend up to $25.0 million to repurchase shares of our common stock, depending on market conditions,
the stock price and other factors. The share repurchase program is intended in part to offset the
issuance of shares of our common stock as a result of the iArchives acquisition.
Key Business Metrics
Our management regularly reviews a number of financial and operating metrics, including the
following key operating metrics to evaluate our business, determine the allocation of resources,
make decisions regarding corporate strategies and evaluate forward-looking projections. The
following key operating metrics reflect data with respect to the Ancestry.com Web sites and
exclude our other subscription-based Web sites, such as myfamily.com, Genline.se,
Genealogy.com and Footnote.com:
| Total subscribers. A subscriber is an individual who pays for renewable access to one of our Ancestry.com Web sites. Total subscribers is defined as the number of subscribers at the end of the quarter. | |
| Gross subscriber additions. A gross subscriber addition is a new customer who purchases a subscription to one of our Ancestry Web sites, net of any refunds or returns. |
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| Monthly churn. Monthly churn is a measure representing the number of subscribers that cancel in the quarter divided by the sum of beginning subscribers and gross subscriber additions during the quarter. To arrive at monthly churn, we divide the result by three. Management uses this measure to determine the health of our subscriber base. | |
| Subscriber acquisition cost. Subscriber acquisition cost is external marketing and advertising expense, divided by gross subscriber additions in the quarter. Management uses this metric to determine the efficiency of our marketing and advertising programs in acquiring new subscribers. | |
| Average monthly revenue per subscriber. Average monthly revenue per subscriber is total subscription revenues earned in the quarter from subscriptions to one of the Ancestry.com Web sites divided by the average number of subscribers in the quarter, divided by three. The average number of subscribers for the quarter is calculated by taking the average of the beginning and ending number of subscribers for the quarter. |
Because we
recognize subscription revenues ratably over the subscription period, a concentration of renewals in the first half of the year generally has
not resulted in a material seasonal impact on our revenues, but may result in a seasonal effect
on one or more of the key business metrics described above.
Performance Highlights
The following represents our performance highlights for Q3 2010, Q2 2010 and Q3 2009:
Three Months Ended | ||||||||||||
September 30, | June 30, | September 30, | ||||||||||
2010 | 2010 | 2009 | ||||||||||
Total subscribers at end of quarter |
1,376,974 | 1,310,562 | 1,028,180 | |||||||||
Gross subscriber additions |
251,738 | 290,589 | 159,795 | |||||||||
Monthly churn |
4.0 | % | 4.3 | % | 3.6 | % | ||||||
Subscriber acquisition cost |
$ | 81.58 | $ | 74.04 | $ | 70.55 | ||||||
Average monthly revenue per subscriber |
$ | 17.75 | $ | 18.02 | $ | 16.48 |
For Q3 2010, our gross
subscriber additions decreased as compared to Q2 2010 and increased as compared to Q3 2009, reflecting the
continued success of marketing programs on the quarter and the difficult sequential comparison due to strong
subscriber additions from the airing of Who Do You Think You Are? early in Q2 2010.
For Q3 2010, our monthly churn decreased as compared to Q2 2010 and increased as compared to
Q3 2009. The changes in churn are influenced by the growth in subscriber additions and an
increase in the proportion of monthly subscriptions to annual subscriptions during 2010. New
subscribers, i.e., those who have been subscribers for less than 100 days, tend to churn at a
higher rate than the average subscriber. The number of new subscribers in Q3 2010, as a percent
of total subscribers, was slightly lower than that of Q2 2010 and higher than that of Q3 2009.
These factors contributed to a decrease in churn for Q3 2010 as compared to Q2 2010 and an
increase in churn in Q3 2010 as compared to Q3 2009.
For Q3 2010, our subscriber acquisition cost increased as compared to Q2 2010 and Q3 2009.
The increases were due to the growth in marketing expenses exceeding the growth in gross
subscriber additions. Marketing expenses increased primarily due to additional television
marketing in both domestic and international markets, which generally has a higher subscriber
acquisition cost than other marketing channels.
For Q3 2010, our average monthly revenue per subscriber decreased as compared to Q2 2010
primarily due to the timing of Q2 2010 revenue recognition attributable to gross subscriber
additions related to Who Do You Think You Are? Because the majority of the Q1 2010 gross
subscriber additions related to the television show was added in the second half of March, we did
not recognize a significant portion of revenue related to these subscribers until Q2 2010. For Q3
2010, our average monthly revenue increased as compared to Q3 2009 due to both an increase in the
proportion of monthly subscriptions to annual subscriptions and an increase in the proportion of
premium packages to basic packages.
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Components of Condensed Consolidated Statements of Operations
Revenues
Subscription revenues. We derive subscription revenues primarily from providing access to
our services via our various Ancestry.com Web sites. Subscription revenues are recognized ratably
over the subscription period, which consist primarily of annual and monthly subscriptions, net of
estimated cancellations. We typically charge each subscribers credit card for their subscription
at the commencement of their subscription period and at each renewal date (whether annual or
monthly), unless they cancel their subscription before the renewal date. The amount of
unrecognized revenues is recorded in deferred revenue.
A majority of our subscription revenues is derived from subscribers in the United States. We
attribute subscription revenues by country based on the billing address of the subscriber,
regardless of the Web site to which the person subscribes. The following presents subscription
revenue by geographic region (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
United States |
$ | 56,275 | $ | 39,489 | $ | 154,790 | $ | 114,968 | ||||||||
United Kingdom |
10,320 | 8,729 | 30,001 | 25,147 | ||||||||||||
All other countries |
7,644 | 4,385 | 19,552 | 12,391 | ||||||||||||
Total subscription revenues |
$ | 74,239 | $ | 52,603 | $ | 204,343 | $ | 152,506 | ||||||||
Product and other revenues. Product and other revenues include sales of desktop
software (Family Tree Maker), physical delivery of vital records products (birth, marriage and
death certificates), DNA testing (Ancestry.com DNA), advertising and other products and services.
Revenues related to these products are recognized upon shipment of product or fulfillment of
services, as applicable.
Cost of Revenues
Cost of subscription revenues. Cost of subscription revenues consists of amortization of our
database content costs, depreciation expense on Web servers and equipment, credit card processing
fees, Web hosting costs, royalty costs on certain content licensed from others and
personnel-related costs for database content support and subscriber services personnel.
Cost of product and other revenues. Cost of product and other revenues consists of our
direct costs to purchase the products, shipping costs, credit card processing fees,
personnel-related costs of warehouse personnel, warehouse storage costs and royalties on products
licensed from others. In 2010, we changed the distribution arrangement for our retail Family Tree
Maker software product to a royalty-based model, which eliminated our costs of product revenues
for retail copies sold.
Personnel-related costs for each category of cost of revenues and operating expenses include
salaries, bonuses, stock-based compensation, employer payroll taxes and employee benefit costs.
Operating Expenses
Technology and development. Technology and development expenses consist of personnel-related
costs incurred in product development, maintenance and testing of our Web sites, enhancing our
record search and linking technologies, developing solutions for new product lines, internal
information systems and infrastructure, third-party development, and other internal-use software
systems. Our development costs are primarily based in the United States and are primarily devoted
to providing accessibility to content and tools for individuals to do family history research.
Marketing and advertising. Marketing and advertising expenses consist primarily of direct
expenses related to television and online advertising and personnel-related expenses.
General and administrative. General and administrative expenses consist principally of
personnel-related expenses for our executive, finance, legal, human resources and other
administrative personnel, as well as outside services costs, consisting primarily of consultants,
legal and accounting fees, and other general corporate expenses. We expect that in Q4
2010, general and administrative costs will continue to increase in absolute dollars.
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Amortization of acquired intangible assets. Amortization of acquired intangible assets is
the amortization expense associated with subscriber relationships and contracts, core
technologies, and intangible assets, including trademarks and
tradenames. Subscriber relationships and contracts are amortized based on the expected annual turnover
rate, or rate of attrition, of the subscribers that approximates our monthly churn, resulting in
an accelerated basis of amortization. We believe that recognizing amortization expense in this
pattern better matches the amortization expense with the revenue generated from these
subscribers. In Q3 2010, as a result of our business acquisitions, we increased the fair value
associated with acquired intangible assets. As such, we expect that amortization of acquired
intangible assets will increase in Q4 2010.
Other Income (Expense) and Income Tax Expense
Interest expense. Interest expense includes the interest expense associated with our
long-term debt and amortization of deferred financing costs. Our interest expense varies based on
the level of debt outstanding and changes in interest rates.
Interest income. Interest income includes interest earned on cash and cash equivalents and
short-term investments.
Income tax expense. Income tax expense consists of federal and state income taxes in the
United States and income taxes in certain foreign jurisdictions.
Results of Operations
The following table sets forth our condensed consolidated statements of operations as a
percentage of revenues for the three and nine months ended September 30, 2010 and 2009. The
information contained in the table below should be read in conjunction with our condensed
consolidated financial statements and the related notes.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Subscription revenues |
93.6 | % | 92.3 | % | 93.7 | % | 92.5 | % | ||||||||
Product and other revenues |
6.4 | 7.7 | 6.3 | 7.5 | ||||||||||||
Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Costs of revenues: |
||||||||||||||||
Cost of subscription revenues |
14.2 | 17.6 | 15.6 | 18.0 | ||||||||||||
Cost of product and other revenues |
1.5 | 2.4 | 1.8 | 2.6 | ||||||||||||
Total cost of revenues |
15.7 | 20.0 | 17.4 | 20.6 | ||||||||||||
Gross profit |
84.3 | 80.0 | 82.6 | 79.4 | ||||||||||||
Operating expenses: |
||||||||||||||||
Technology and development |
13.3 | 16.0 | 13.9 | 16.2 | ||||||||||||
Marketing and advertising |
30.4 | 25.0 | 32.6 | 26.8 | ||||||||||||
General and administrative |
11.5 | 18.0 | 11.4 | 14.9 | ||||||||||||
Amortization of acquired
intangible assets |
4.8 | 7.1 | 5.1 | 7.4 | ||||||||||||
Total operating expenses |
60.0 | 66.1 | 63.0 | 65.3 | ||||||||||||
Income from operations |
24.3 | 13.9 | 19.6 | 14.1 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(2.8 | ) | (2.5 | ) | (2.2 | ) | (2.9 | ) | ||||||||
Interest income |
0.3 | 0.1 | 0.1 | 0.4 | ||||||||||||
Other income, net |
0.5 | | 0.2 | | ||||||||||||
Income before income taxes |
22.3 | 11.5 | 17.7 | 11.6 | ||||||||||||
Income tax expense |
(7.4 | ) | (4.4 | ) | (6.6 | ) | (4.2 | ) | ||||||||
Net income |
14.9 | 7.1 | 11.1 | 7.4 | ||||||||||||
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Revenues, Cost of Revenues and Gross Profit
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Subscription revenues |
$ | 74,239 | $ | 52,603 | 41.1 | % | $ | 204,343 | $ | 152,506 | 34.0 | % | ||||||||||||
Product and other
revenues |
5,076 | 4,384 | 15.8 | 13,853 | 12,287 | 12.7 | ||||||||||||||||||
Total revenues |
79,315 | 56,987 | 39.2 | 218,196 | 164,793 | 32.4 | ||||||||||||||||||
Cost of revenues: |
||||||||||||||||||||||||
Cost of subscription
revenues |
11,267 | 10,033 | 12.3 | 33,996 | 29,755 | 14.3 | ||||||||||||||||||
Cost of product and
other revenues |
1,155 | 1,389 | (16.8 | ) | 3,929 | 4,213 | (6.7 | ) | ||||||||||||||||
Total cost of
revenues |
12,422 | 11,422 | 8.8 | 37,925 | 33,968 | 11.6 | ||||||||||||||||||
Gross profit |
$ | 66,893 | $ | 45,565 | 46.8 | $ | 180,271 | $ | 130,825 | 37.8 | ||||||||||||||
Gross profit percentage |
84.3 | % | 80.0 | % | 82.6 | % | 79.4 | % |
Subscription revenues
For Q3 2010, our subscription revenues increased $21.6 million as compared to Q3 2009. The
increase was primarily the result of an increase in the number of total subscribers, as well as
an increase in average monthly revenue per subscriber on our Ancestry.com Web sites. Average
monthly revenue per subscriber increased due to both an increase in the proportion of monthly
subscriptions to annual subscriptions, and an increase in the proportion of premium packages to
basic packages. During Q3 2010, changes in foreign currency exchange rates did not have a
significant impact on subscription revenues.
For the nine months ended September 30, 2010, our subscription revenues increased $51.8
million as compared to the nine months ended September 30, 2009. The increase was driven by the
same factors that influenced the three month results.
Product and other revenues
For Q3 2010, product and other revenues increased $0.7 million as compared to Q3 2009. For
the nine months ended September 30, 2010, product and other revenues increased $1.6 million as
compared to the nine months ended September 30, 2009. The increases were primarily due to
increased revenues related to our Family Tree Maker software, vital records products, and DNA
testing.
Cost of subscription revenues
For Q3 2010, our cost of subscription revenues increased $1.2 million as compared to Q3
2009. The increase was primarily due to a $0.5 million increase in credit card processing fees
reflecting higher transaction volumes as a result of increased total subscribers, a $0.3 million
increase in personnel-related costs attributable to additional Web operations personnel and a
$0.2 million increase in Web hosting costs attributable to greater user traffic volumes.
For the nine months ended September 30, 2010, our cost of subscription revenues increased
$4.2 million as compared to the nine months ended September 30, 2009. The increase was primarily
due to a $1.5 million increase in personnel-related costs attributable to additional Web
operations personnel, a $1.4 million increase in
credit card processing fees reflecting higher transaction volumes as a result of increased
total subscribers, a $0.7 million increase in Web hosting costs attributable to greater user
traffic volumes and a $0.4 million increase in content amortization.
Cost of product and other revenues
Cost of product and other revenues decreased slightly between Q3 2010 and Q3 2009 as well as
between the nine months ended September 30, 2010 and the nine months ended September 30, 2009
despite increases in product and other revenues during the same periods in 2010. The
decreases were primarily due to the change in our Family Tree Maker distribution arrangement in 2010.
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Operating Expenses
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Technology and
development |
$ | 10,528 | $ | 9,142 | 15.2 | % | $ | 30,447 | $ | 26,690 | 14.1 | % | ||||||||||||
Marketing and
advertising |
24,125 | 14,240 | 69.4 | 71,061 | 44,226 | 60.7 | ||||||||||||||||||
General and
administrative |
9,141 | 10,229 | (10.6 | ) | 24,915 | 24,569 | 1.4 | |||||||||||||||||
Amortization of
acquired
intangible assets |
3,791 | 4,052 | (6.4 | ) | 11,149 | 12,165 | (8.4 | ) | ||||||||||||||||
Total
operating
expenses |
$ | 47,585 | $ | 37,663 | 26.3 | $ | 137,572 | $ | 107,650 | 27.8 | ||||||||||||||
Technology and development
For Q3 2010, our technology and development expenses increased $1.4 million as compared to
Q3 2009. For the nine months ended September 30, 2010, our technology and development expenses
increased $3.8 million as compared to the nine months ended September 30, 2009. The increases
were primarily the result of increases in personnel-related expenses reflecting increases in the
number of technology and development personnel.
Marketing and advertising
For Q3 2010, our marketing and advertising expenses increased $9.9 million as compared to Q3
2009. For the nine months ended September 30, 2010, our marketing and advertising expenses
increased $26.8 million as compared to the nine months ended September 30, 2009. The increases
were due to increased television and online advertising in both the domestic and international
markets.
General and administrative
For Q3 2010, our general and administrative expenses decreased $1.1 million as compared to
Q3 2009. Excluding the settlement of a claim related to a content index in Q3 2009 of $2.3
million, general and administrative expenses increased primarily due to an increase of $1.2
million in outside services costs primarily related to business acquisition activities incurred
in Q3 2010.
For the nine months ended September 30, 2010, our general and administrative expenses
remained relatively flat as compared to the nine months ended September 30, 2009. Excluding the
settlement of a claim related to a content index in Q3 2009 of $2.3 million, general and
administrative expenses increased primarily due to an increase of $1.9 million in outside
services costs primarily related to business acquisition activities and costs associated with
operating as a public company. In addition, we had a $0.5 million change in position from foreign
currency gains in the nine months ended September 30, 2009 to losses in the nine months ended
September 30, 2010.
Amortization of acquired intangible assets
For Q3 2010, amortization of acquired intangible assets decreased $0.3 million as compared
to Q3 2009. For the nine months ended September 30, 2010, amortization of acquired intangible
assets decreased $1.0 million as compared to the nine months ended September 30, 2009. The
decreases were due to decreased amortization of our subscriber relationship intangible assets,
which are amortized on an accelerated basis.
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Other Income (Expense) and Income Tax Expense
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Other income
(expense): |
||||||||||||||||||||||||
Interest expense |
$ | (2,187 | ) | $ | (1,428 | ) | 53.2 | % | $ | (4,896 | ) | $ | (4,784 | ) | 2.3 | % | ||||||||
Interest income |
201 | 48 | 318.8 | 340 | 746 | (54.4 | ) | |||||||||||||||||
Other income, net |
401 | 4 | NM | 398 | 14 | NM | ||||||||||||||||||
Income tax expense |
(5,914 | ) | (2,485 | ) | 138.0 | (14,247 | ) | (6,927 | ) | 105.7 | ||||||||||||||
Other data: |
||||||||||||||||||||||||
Effective tax rate |
33.4 | % | 38.1 | % | 37.0 | % | 36.2 | % |
Interest expense
For Q3 2010, interest expense increased $0.8 million as compared to Q3 2009. This was
primarily due to the acceleration of $1.3 million of deferred financing costs related to our
long-term debt that was paid in full in September 2010. This increase was partially offset by a
decrease of $0.5 million in interest expense on our long-term debt as a result of a lower average
outstanding balance for Q3 2010 as compared to Q3 2009.
For the nine months ended September 30, 2010, interest expense remained relatively flat as
compared to the nine months ended September 30, 2009. Interest expense decreased $1.6 million as
a result of our carrying a lower average debt balance throughout the nine months ended September
30, 2010 as compared to the nine months ended September 30, 2009. However, this decrease was
offset by an increase in interest expense due to the acceleration of $1.3 million of deferred
financing costs related to our long-term debt that was paid in full in September 2010.
Interest income
For Q3 2010, interest income remained relatively flat as compared to Q3 2009.
For the nine months ended September 30, 2010, interest income decreased $0.4 million as
compared to the nine months ended September 30, 2009. The prior year benefited from $0.5 million
earned on an income tax refund received in the second quarter of 2009.
Other income, net
For Q3 2010 and the nine months ended September 30, 2010, other income increased $0.4
million as compared to Q3 2009 and the nine months ended September 30, 2009. The increases
were primarily due to the settlement of a forward contract for Swedish kronor related to the
acquisition of Genline, which resulted in a gain of $0.4 million in Q3 2010.
Income tax expense
For Q3 2010, our effective income tax rate of 33.4% differed from the federal statutory rate
of 35% principally due to state income taxes of 0.7%, foreign income taxes of 0.5% as a result of
net operating losses in foreign jurisdictions for which no income tax benefit has been
recognized, research and development tax credits of (2.8)%, net tax deductions related to
stock-based compensation expenses of (1.2)% and other items of 1.2%.
For Q3 2009 our effective income tax rate of 38.1% differed from the federal statutory rate
of 35% primarily due to state income taxes of 1.8%, foreign income taxes of 1.8% as a result of
net operating losses in foreign jurisdictions for which no income tax benefit has been
recognized, non-deductible stock-based
compensation expenses of 2.4% and other items of (2.9)%.
For the nine months ended September 30, 2010, our effective income tax rate of 37.0%
differed from the federal statutory rate of 35% principally due to state income taxes of 1.5%,
foreign income taxes of 0.7% as a result of net operating losses in foreign jurisdictions for
which no income tax benefit has been recognized, research and development tax credits of (1.3)%
and other items of 1.1%.
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For the nine months ended September 30, 2009, our effective tax rate of 36.2% differed from
the federal statutory rate of 35% principally due to state income taxes of 1.8%, changes in the
state tax apportionment factors resulting from enacted legislation of (5.5)%, foreign income
taxes of 1.4% and other items of 3.5%.
Other Financial Data
In addition to our results determined under U.S. generally accepted accounting principles
(GAAP) discussed above, we believe adjusted EBITDA and free cash flow are useful to investors
in evaluating our operating performance because securities analysts use adjusted EBITDA and free
cash flow as supplemental measures to evaluate the overall operating performance of companies.
For the three months and nine months ended September 30, 2010 and 2009, our net income, adjusted
EBITDA and free cash flow were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Net Income |
$ | 11,809 | $ | 4,041 | 192.2 | % | $ | 24,294 | $ | 12,224 | 98.7 | % | ||||||||||||
Adjusted EBITDA(1) |
29,025 | 17,931 | 61.9 | 71,308 | 52,878 | 34.9 | ||||||||||||||||||
Free cash flow(2) |
20,148 | 9,096 | 121.5 | 46,004 | 23,848 | 92.9 |
(1) | Adjusted EBITDA. We define adjusted EBITDA as net income (loss) plus net interest expense; income tax expense; non-cash charges including depreciation, amortization, impairment of intangible assets and stock-based compensation expense; and other (income) expense. | |
(2) | Free cash flow. We define free cash flow as net income plus net interest expense; income tax expense; non-cash charges including depreciation, amortization, impairment of intangible assets and stock-based compensation expense; and other (income) expense; minus capitalization of content database costs, capital expenditures and cash paid for income taxes and interest. |
Adjusted EBITDA and free cash flow are financial data that are not calculated in accordance
with GAAP. The table below in this Managements Discussion and Analysis of Financial Condition
and Results of Operations provides a reconciliation of these non-GAAP financial measures to net
income, the most directly comparable financial measure calculated and presented in accordance
with GAAP. We prepare adjusted EBITDA and free cash flow to eliminate the impact of items that we
do not consider indicative of our core operating performance. We encourage you to evaluate these
adjustments and the reasons we consider them appropriate, as well as the material limitations of
non-GAAP measures.
Our management uses adjusted EBITDA and free cash flow as measures of operating performance;
for planning purposes, including the preparation of our annual operating budget; to allocate
resources to enhance the financial performance of our business; to evaluate the effectiveness of
our business strategies; to provide consistency and comparability with past financial
performance; to facilitate a comparison of our results with those of other companies; and in
communications with our board of directors concerning our financial performance. We also use
adjusted EBITDA and have used free cash flow as factors when determining managements incentive
compensation.
Management believes that the use of adjusted EBITDA and free cash flow provides consistency
and comparability with our past financial performance, facilitates period to period comparisons
of operations, and also facilitates comparisons with other peer companies, many of which use
similar non-GAAP financial
measures to supplement their GAAP results. Management believes that it is useful to exclude
non-cash charges such as depreciation, amortization and stock-based compensation from adjusted
EBITDA and free cash flow because (i) the amount of such non-cash expenses in any specific period
may not directly correlate to the underlying performance of our business operations and (ii) such
expenses can vary significantly between periods as a result of new acquisitions, full
amortization of previously acquired tangible and intangible assets or the timing of new
stock-based awards, as the case may be.
Although adjusted EBITDA and free cash flow are frequently used by investors and securities
analysts in their evaluations of companies, adjusted EBITDA and free cash flow each have
limitations as an analytical tool, and you should not consider them in isolation or as a
substitute for analysis of our results of operations as reported under GAAP. Some of these
limitations are:
| adjusted EBITDA and free cash flow do not reflect our future requirements for contractual commitments and adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures; | |
| adjusted EBITDA and free cash flow do not reflect changes in, or cash requirements for, our working capital; |
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| adjusted EBITDA does not reflect interest income or interest expense; | |
| adjusted EBITDA does not reflect cash requirements for income taxes; | |
| adjusted EBITDA and free cash flow do not reflect the non-cash component of employee compensation; | |
| although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for these replacements; | |
| other companies in our industry may calculate adjusted EBITDA or free cash flow or similarly titled measures differently than we do, limiting their usefulness as comparative measures. |
The following table presents a reconciliation of our adjusted EBITDA and free cash flow to
net income, the most comparable GAAP financial measure, for each of the periods identified.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Reconciliation of adjusted EBITDA and free cash
flow to net income: |
||||||||||||||||
Net income |
$ | 11,809 | $ | 4,041 | $ | 24,294 | $ | 12,224 | ||||||||
Interest expense, net |
1,986 | 1,380 | 4,556 | 4,038 | ||||||||||||
Income tax expense |
5,914 | 2,485 | 14,247 | 6,927 | ||||||||||||
Depreciation expense |
2,751 | 2,762 | 8,355 | 8,092 | ||||||||||||
Amortization expense |
5,691 | 5,805 | 16,713 | 17,346 | ||||||||||||
Stock-based compensation |
1,275 | 1,462 | 3,541 | 4,265 | ||||||||||||
Other income, net |
(401 | ) | (4 | ) | (398 | ) | (14 | ) | ||||||||
Adjusted EBITDA |
$ | 29,025 | $ | 17,931 | $ | 71,308 | $ | 52,878 | ||||||||
Capitalization of content database costs |
(3,393 | ) | (2,183 | ) | (8,534 | ) | (5,855 | ) | ||||||||
Capital expenditures |
(4,269 | ) | (1,415 | ) | (7,897 | ) | (7,566 | ) | ||||||||
Cash paid for interest |
(1,051 | ) | (1,208 | ) | (2,528 | ) | (6,624 | ) | ||||||||
Cash paid for income taxes |
(164 | ) | (4,029 | ) | (6,345 | ) | (8,985 | ) | ||||||||
Free cash flow |
$ | 20,148 | $ | 9,096 | $ | 46,004 | $ | 23,848 | ||||||||
Liquidity and Capital Resources
As of September 30, 2010, we had $180.1 million of total liquidity, comprised of $64.1
million in cash and cash equivalents, $16.0 million in short-term investments and the ability to
borrow $100.0 million under our new revolving credit facility. Cash and cash equivalents are
comprised of high quality investments including money market funds. Short-term investments are
classified as available-for-sale and are held in high quality investments including U.S.
government agency securities with maturities less than a year. Note 2 of the accompanying notes
to our condensed consolidated financial statements describes further the composition of our cash and cash
equivalents and short-term investments. Note 6 to our condensed consolidated financial statements describes
further the terms of our new revolving credit facility.
On September 9, 2010, we terminated and paid in full the $76.2 million outstanding under our
previous credit facility from cash on hand, including the proceeds from our initial public
offering. Also on September 9, 2010, in connection with the payoff of the previous credit
facility, we entered into a new three-year $100.0 million principal amount senior secured revolving
credit facility with Bank of America, N.A., as administrative agent, and certain other financial
institutions. Our new revolving credit facility includes a $5.0 million sublimit for the issuance
of letters of credit and a $7.0 million sublimit for swingline
loans. As of September 30, 2010, we have not drawn
any funds under the new credit facility.
In December 2007, Spectrum Equity Investors contributed cash and equity with an aggregate
value of $138.6 million and we entered into a credit facility that included a $140.0 million term
loan as part of a larger transaction, which we refer to as the Spectrum investment. On November 4, 2009, we commenced our initial public offering and completed the offering on November 10,
2009. We received net proceeds of $47.8 million from the offering, after deducting the
underwriting discounts and commissions and offering expenses payable by us. Except for our
initial public offering, we have funded our operations primarily from cash flows from operations
during the last five years which has satisfied all of our cash requirements.
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Table of Contents
Our primary uses of cash include operating costs such as personnel-related expenses,
marketing and advertising, payments related to long-term debt, capital expenditures related to
equipment and database content costs, business acquisitions, expansion of new markets and
businesses, and Web hosting costs. Our future capital requirements may vary materially from those
now planned and will depend on many factors, including:
| the development of new services; | |
| market acceptance of our services; | |
| the levels of advertising and promotion required to retain and acquire subscribers; | |
| the launch of additional services and improvement of our competitive position in the marketplace; | |
| the level of new content acquisition required to retain and acquire subscribers; | |
| the expansion of our development and marketing organizations; | |
| our engaging in potential business acquisitions; | |
| our ability to integrate and operate acquired businesses; | |
| future potential stock repurchases by us; | |
| the building of infrastructure necessary to support our growth; and | |
| our relationships with subscribers and vendors. |
We have experienced increases in our expenditures in connection with the growth in our
operations and personnel, and we anticipate that our expenditures will continue to increase in
the future. We expect cash on hand, internally generated cash flow and available credit from our
new credit facility will provide adequate funds for operating and recurring cash needs ( e.g.,
working capital and capital expenditures) for at least the next 12 months.
Summary cash flow information for cash and cash equivalents and short-term investments for
Q3 2010 and Q3 2009 and the nine months ended September 30, 2010 and 2009 is set forth below. For
the purpose of this cash flow analysis, we have included our highly liquid short-term investments, which
we believe we can readily convert to cash on a short-term basis. We consider cash, cash equivalents and
short-term investments in evaluating our overall cash position.
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Net cash and cash
equivalents and
short-term investments
provided by (used in): |
||||||||||||||||||||||||
Operating activities |
$ | 30,001 | $ | 13,972 | 115 | % | $ | 87,555 | $ | 51,736 | 69 | % | ||||||||||||
Investing activities |
(15,447 | ) | (3,598 | ) | 329 | (24,168 | ) | (13,421 | ) | 80 | ||||||||||||||
Financing activities |
(68,450 | ) | (2,394 | ) | NM | (83,603 | ) | (17,843 | ) | 369 | ||||||||||||||
Effect of
changes in foreign
currency exchange
rates on cash and
cash equivalents |
33 | | NM | 33 | | NM | ||||||||||||||||||
Increase
(Decrease) in cash and
cash equivalents and
short-term investments |
$ | (53,863 | ) | $ | 7,980 | 575 | $ | (20,183 | ) | $ | 20,472 | (199 | ) | |||||||||||
Cash Flow Analysis
Sources and uses of cash
For Q3 2010, our cash and cash equivalents and short-term investments decreased $53.9
million to $80.1 million, as compared to an increase of $8.0 million in Q3 2009. For the nine
months ended September 30, 2010, our cash and cash equivalents and short-term investments
decreased $20.2 million to $80.1 million, as compared to an increase of $20.5 million in the nine
months ended September 30, 2009. Net cash provided by operating activities was used primarily for
debt repayments, business acquisitions and investments in capital equipment and content
databases.
Net cash provided by operating activities
For Q3 2010, net cash provided by operating activities was $30.0 million, an increase of
$16.0 million as compared to Q3 2009. Net cash provided by operating activities consists of net
income as adjusted for non-cash expenses and changes in operating assets and liabilities. For Q3
2010, our net income totaled $11.8 million, an increase of $7.8 million as compared to Q3 2009.
Our non-cash expenses, including depreciation, amortization of content database costs,
amortization of acquired intangible assets, amortization of deferred financing costs, stock-based
compensation and deferred income taxes, totaled $14.9 million, an increase of $4.0 million. Our
net cash provided by changes in operating assets and liabilities excluding deferred revenue
totaled $2.8 million, an increase of $3.8 million over Q3 2009. The change in our deferred
revenue, which represents cash received from subscribers but not yet recognized in revenue,
totaled $0.5 million, an increase of $0.4 million over Q3 2009.
For the nine months ended September 30, 2010, net cash
provided by operating activities was $87.6 million, an increase of $35.8 million as compared to the nine months ended September 30,
2009. Net cash provided by operating activities consists of net income as adjusted for non-cash
expenses and changes in operating assets and liabilities. For the nine months ended September 30,
2010, our net income totaled $24.3 million, an increase of $12.1 million as compared to the nine
months ended September 30, 2009. Our non-cash
expenses, including depreciation, amortization of content database costs, amortization of
acquired intangible assets, amortization of deferred financing costs, stock-based compensation
and deferred income taxes, totaled $32.0 million, an increase of $2.9 million over the nine
months ended September 30, 2009. Our net cash provided by changes in operating assets and
liabilities excluding deferred revenue totaled $11.7 million, an increase of $9.9 million. The
change in our deferred revenue, which represents cash received from subscribers but not yet
recognized in revenue, totaled $19.6 million, an increase of $10.9 million over the nine months
ended September 30, 2009. The change in deferred revenue increased primarily due to the growth in
subscribers and the increase in the proportion of premium packages over basic packages partially
offset by a change in proportion from annual to monthly subscriptions.
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Table of Contents
Net cash used in investing activities
For Q3 2010, net cash
used in investing activities totaled $15.4 million, an increase of
$11.8 million as compared to Q3 2009. Net cash used in investing activities consisted of business
acquisition and investments in capital equipment and content databases. The increase in net cash
used in investing activities was due to $8.1 million of cash used to acquire Genline and
ProGenealogists and increased purchases of capital equipment and content databases.
For the nine months ended September 30, 2010, net cash
used in investing activities totaled $24.2 million, an increase of $10.7 million as compared to the nine months ended September 30,
2009. Net cash used in investing activities consisted of business acquisitions and investments in
capital equipment and content databases. The increase in net cash used in investing activities
was due to $8.1 million of cash used to acquire Genline and ProGenealogists and increased
purchases of capital equipment and content databases.
Net cash used in financing activities
For Q3 2010, net cash used in financing activities totaled $68.5 million, an increase of
$66.1 million as compared to Q3 2009. Net cash used in financing activities consisted primarily
of principal payments on long-term debt of $76.2 million partially offset by proceeds from stock
option exercises of $4.4 million and excess tax benefits from stock-based compensation of $4.1
million.
For the nine months ended September 30, 2010, net cash
used in financing activities totaled $83.6 million, an increase of $65.8 million as compared to the nine months ended September 30,
2009. Net cash used in financing activities consisted primarily of principal payments on
long-term debt of $100.0 million partially offset by proceeds from stock option exercises of $9.5
million and excess tax benefits from stock-based compensation of $7.6 million.
Contractual Obligations
Long-term Debt
On September 9, 2010, we terminated and paid in full the $76.2 million outstanding under our previous
credit facility from cash on hand including the proceeds from our initial public offering. Also on
September 9, 2010, in connection with the payoff of the previous credit facility, we entered into a
new three-year $100.0 million principal amount senior secured revolving credit facility with Bank
of America, N.A., as administrative agent and certain other financial institutions. The new credit
facility includes a $5.0 million sublimit for the issuance of letters of credit and a $7.0 million
sublimit for swingline loans. As of November 1, 2010, we have not drawn any funds under the new
credit facility.
Interest under the new credit facility is variable generally based on LIBOR or the base rate
(defined as the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Bank of America prime
rate and (c) the Eurodollar rate plus 1.00%), plus a margin based on our consolidated leverage
ratio. Each swingline loan will bear interest at the base rate plus a margin.
The new credit facility matures September 9, 2013 and is secured by a first-priority security
interest in all of the capital stock of our wholly-owned domestic subsidiaries and 65% of the
capital stock in our material foreign subsidiaries as well as our currently owned and hereafter
acquired real and personal property assets, as well as those of our wholly-owned domestic
subsidiaries. Borrowings under the new credit facility may be used to finance the on-going working
capital needs of the company and its subsidiaries and for general corporate purposes, including
permitted business acquisitions and capital expenditures.
The new credit facility contains financial and other covenants, including but not limited to,
limitations on indebtedness, liens, mergers, asset sales, dividends and other payments in respect
of equity interests, capital expenditures, investments and affiliate transactions (subject to
qualifications and baskets) as well as a minimum fixed charge coverage ratio and a maximum senior
secured leverage ratio. A violation of these covenants or the occurrence of certain other events
could result in a default permitting the termination of the lenders commitments under the credit
facility and/or the acceleration of any loan amounts then outstanding. We were in compliance with
all financial and other covenants at September 30, 2010. Note 6 to our condensed consolidated financial
statements describes further the terms of the new credit facility.
Operating Leases
We have entered into various non-cancelable operating lease agreements for our offices and
distribution centers globally with original lease periods expiring through 2016. We recognize
rent expense on our operating leases on a straight-line basis beginning at the commencement of
the lease.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not engage in transactions that generate
relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities. Accordingly, we are not subject to financing,
liquidity, market risk, or credit risk arising due to off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in conformity with GAAP. The
preparation of these condensed consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and
expenses and related disclosures. These estimates and assumptions are often based on judgments
that we believe to be reasonable under the circumstances at the time made, but all such estimates
and assumptions are inherently uncertain and unpredictable. Actual results may differ from those
estimates and assumptions, and it is possible that other professionals, applying their own
judgment to the same facts and circumstances, could develop and support alternative estimates and
assumptions that would result in material changes to our operating results and financial
condition. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based
on historical experience and various other assumptions that we believe to be reasonable under the
circumstances.
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We consider the assumptions and estimates associated with recoverability of intangible
assets, the period of amortization of our database content costs, stock-based compensation and
income taxes to be our critical accounting estimates. For further information on our significant
accounting policies, see Note 1 to our consolidated financial statements included in our 2009
Annual Report. There have been no changes to our significant accounting policies since
December 31, 2009 except as discussed below in Recent Accounting Pronouncements.
Recent Accounting Pronouncements
There have been no new accounting pronouncements or changes in accounting pronouncements
during the nine months ended September 30, 2010, as compared to the recent accounting
pronouncements described in the 2009 Annual Report, that are of significance, or potential
significance, to the company that we expect to adopt in the future.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are
exposed to market risks in the ordinary course of our business. These risks include
primarily interest rate and foreign currency exchange risks. On September 9, 2010,
we terminated and paid in full the $76.2 million outstanding under our previous
credit facility from cash on hand including the proceeds from our initial public offering.
Until such time as we draw down on our new credit facility, our exposure to interest rate risk is minimal.
For financial market risks related to changes in interest rates and foreign currency exchange, reference is made to Item 7A
Quantitative and Qualitative Disclosures About Market Risk contained in Part II of our 2009
Annual Report.
In connection with the acquisition of Genline, we entered into a forward contract to
purchase 53 million Swedish kronor. We entered into the forward contract to lock in the amount of
U.S. dollars required to settle the transaction to acquire Genline. We did not qualify the
contract for hedge accounting and therefore the fair value gains and losses on the contract are
recorded in net income. In July 2010, the forward contract was settled resulting in a gain of
approximately $0.4 million which was recorded in other income on the condensed consolidated
statement of operations.
Item 4. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of the end of the period covered by this
Quarterly Report our disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by us in reports that we file or submit under
the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and include controls and
procedures designed to ensure that the information required to be disclosed by us in such reports
is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures will prevent or detect all error and all
fraud. While our disclosure controls and procedures are designed to provide reasonable assurance
of their effectiveness, because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if
any, within Ancestry.com have been detected.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the three months ended September 30, 2010 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
In August 2009, we received a letter from counsel to Shutterfly, Inc., alleging infringement
of certain of its patents by our operation of our MyCanvas.com Web site. If litigation were to
commence, we believe that we have substantive and meritorious defenses to these claims and would
contest any claim vigorously.
In addition, from time to time, we are a party to or otherwise involved in legal proceedings
or other legal matters that arise in the ordinary course of business or otherwise. While
management does not believe that any pending legal claim or proceeding will be resolved in a
manner that would have a material adverse effect on our business, we cannot assure you of the
ultimate outcome of any legal proceeding or contingency in which we are or may become involved.
Item 1A. Risk Factors
A wide range of factors could materially affect our performance. The following factors and
other information included in this Quarterly Report should be carefully considered. Although the
risk factors described below are the ones management deems significant, additional risks and
uncertainties not presently known to us or that we presently deem less significant may also
impair our business operations. If any of the following events actually occur, our business,
financial condition and results of operations could be adversely affected.
Risks Related to Our Business
If our efforts to retain and attract subscribers are not successful, our revenues will be
adversely affected.
We generate substantially all of our revenue from subscriptions to our services. We must
continue to retain existing and attract new subscribers. If our efforts to satisfy our existing
subscribers are not successful, we may not be able to retain them, and as a result, our revenues
would be adversely affected. For example, if consumers do not perceive our services to be
reliable, valuable and of high quality, if we fail to regularly introduce new and improved
services, or if we introduce new services that are not favorably received by the market, we may
not be able to retain existing or attract new subscribers. We rely on our marketing and
advertising efforts, including television and online and offline performance-based and fixed-cost
programs, to attract new subscribers and retain existing subscribers. If we are unable to
effectively retain existing subscribers and attract new subscribers, our business, financial
condition and results of operations would be adversely affected.
The relative service levels, pricing and related features of competitors to our products and
services are some of the factors that may adversely impact our ability to retain existing
subscribers and attract new subscribers. Some of our current competitors provide genealogical
records free of charge. Some governments or private organizations may make historical records
available online at no cost to consumers and some commercial entities could choose to make such
records available on an advertising-supported basis rather than a subscription basis. If
consumers are able to satisfy their family history research needs at no or lower cost, they may
not perceive value in our products and services. If our efforts to satisfy and retain our
existing subscribers are not successful, we may not be able to continue to attract new
subscribers through word-of-mouth referrals. Further, subscriber growth may decrease as a result
of a decline in interest in family history research. Any of these factors could cause our
subscriber growth rate to fall, which would adversely impact our business, financial condition
and results of operations.
Our recent performance may not be sustainable, which could negatively affect our stock price or
financial condition and results of operations.
Our revenues have grown rapidly, increasing from $140.3 million in 2005 to $224.9 million in
2009, representing a compound annual growth rate of 12.5%. In the third quarter of 2010 and the
nine months ended September 30, 2010, our revenue growth was 39% and 32%, respectively, over the
prior year periods. We may not be able to sustain our recent growth rate in future periods and
you should not rely on the revenue growth of these periods or any prior period or year as an
indication of our future performance. Additionally, we expect to continue to devote substantial
resources and funds to improving our technologies and product offerings and acquiring new and
relevant content, and also to expanding awareness of our brand and category through marketing,
such as the increased advertising we have undertaken in connection with the television program
Who Do You Think You Are? which may reduce our margins in the near term. If our margins or our
future growth resulting from our implementation of these strategies fail to meet investor or
analyst expectations, it could have a negative effect on our stock price. If our growth rate were
to decline significantly or become negative, it could adversely affect our financial condition
and results of operations.
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If we experience excessive rates of subscriber cancellation, or churn, our revenues and business
will be harmed.
We must continually add new subscribers both to replace subscribers who choose to cancel
their subscriptions and to grow our business beyond our current subscriber base. Subscribers
choose to cancel their subscriptions for many reasons, including a
desire to reduce discretionary spending or a perception that they do not have sufficient time to use the service
or otherwise do not use the service sufficiently, the service is a poor value, competitive services provide a better value or
experience, or subscriber service issues are not satisfactorily resolved. Subscribers may choose
to cancel their subscription at any time prior to the renewal date. When we add subscribers as
rapidly as we have in the first three quarters of 2010, the rate of subscriber cancellation, or
churn, may also increase as it did beginning in the second quarter of 2010
with churn rising from 3.3% in the first quarter of 2010 to 4.3% in the second quarter of 2010 and
4.0% in the third quarter of 2010. If we are unable to attract new subscribers in numbers greater than our subscriber churn, our subscriber base will decrease and
our business, financial condition and results of operations will be adversely affected.
If our subscriber churn increases, we may be required to increase the rate at which we add
new subscribers in order to maintain and grow our revenues. If excessive numbers of subscribers
cancel our service, we may be required to incur significantly higher marketing and advertising
expenses than we currently anticipate to replace these subscribers with new subscribers. A
significant increase in our subscriber churn would have an adverse effect on our business,
financial condition and results of operations.
A change in our mix of subscription durations could have a significant impact on our
revenue, churn and revenue visibility.
A majority of our subscribers has annual subscriptions. At any point in time, however, the
majority of new subscribers generally signs up for monthly subscriptions and may or may not
choose to renew. We generally experience higher rates of churn for monthly subscribers than for
annual subscribers. As of September 30, 2010, the percentage of overall subscribers that are
monthly subscribers had increased as compared to September 30, 2009. If this trend continues,
more of our revenue would become dependent on monthly renewals, and we would likely have higher
churn. We continually evaluate the types of subscriptions that are most appropriate for us and
our subscribers. As we make these evaluations, we may more aggressively market subscriptions that
are shorter than our annual subscriptions. Any material change in our mix of subscription
duration could have a significant impact on our revenue and churn.
Additionally, the largely annual commitments of our subscribers enhance our near-term
visibility on our revenues, which we believe enables us to more effectively manage the growth of
our business and provide working capital benefits. A shift in subscriber mix towards more monthly
subscriptions may result in diminished visibility with respect to forecasting revenue, which
could make it more difficult to manage our growth and effectively budget future working capital
requirements.
Because we recognize revenues from subscriptions to our service over the term of the
subscription, downturns or upturns in subscriptions may not be immediately reflected in our
operating results and therefore could affect our operating results in later periods.
We recognize revenues from subscribers ratably over the term of their subscriptions. Given
that annual subscriptions still represent a substantial majority of our subscriptions, a large
portion of our revenues for each quarter reflects deferred revenue from subscriptions entered
into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one
quarter will not necessarily be fully reflected in the revenues in that quarter but will
negatively affect our revenues in future quarters. Accordingly, the effect of significant
downturns or upturns in subscriptions or market acceptance of our service, or changes in
subscriber churn, may not fully impact our results of operations until future periods.
If our marketing and advertising efforts fail to generate additional revenues on a cost-effective
basis, or if we are unable to manage our marketing and advertising expenses, it could harm our
results of operations and growth.
Our future growth and profitability, as well as the maintenance and enhancement of our
brands, will depend in large part on the effectiveness and efficiency of our marketing and
advertising expenditures and the continued success of television programming related to family
history. We use a diverse mix of online and offline performance-based and fixed-cost marketing
and advertising programs to promote our products and services, and we
periodically adjust our mix of marketing and advertising programs to reflect our television
demographic. We have recently experienced price increases in some of our marketing and advertising
channels. Significant increases in the pricing of one or more of our marketing and advertising
channels would increase our marketing and advertising expense or cause us to choose less
expensive but potentially less effective marketing and advertising channels. As we implement new
marketing and advertising strategies, we have expanded into television advertising, which may
have significantly higher costs than other channels and which could adversely affect our
profitability. Further, we may over time become disproportionately reliant on one channel or
partner, such as NBC in future seasons of Who Do You Think You Are? which could increase our
operating expenses. We have incurred and may in the future incur marketing and advertising
expenses significantly in advance of the time we anticipate recognizing revenue associated with
such expenses, as in the case of television programming, and our marketing and advertising
expenditures may not continue to result in increased revenue or generate sufficient levels of
brand awareness. If we are unable to maintain our marketing and advertising channels on
cost-effective terms or replace existing marketing and advertising channels with similarly
effective channels, our marketing and advertising expenses could increase substantially, our
subscriber levels could be affected adversely, and our business, financial condition and
results of operations may suffer.
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In addition, our expanded marketing efforts may increase our subscriber acquisition cost.
For example, our decision to expand our international marketing and advertising efforts will lead
to a significant increase in our marketing and advertising expenses. Any of these additional
expenses may not result in sufficient customer growth to offset cost, which would have an adverse
effect on our business, financial condition and results of operations.
We cannot predict whether the television show Who Do You Think You Are? will continue to have
an impact on our business in the future.
We purchased product integration in the television show Who Do You Think You
Are? in the United States, which originally premiered in March 2010. Although the original
airing of this series, together with our increased television advertising, caused increased
interest in our core business that resulted in a greater number of subscribers, we cannot
guarantee that the show will have a long-term favorable effect on our net income. NBC has announced a
second season of Who Do You Think You Are? and we again have purchased product integration,
but we cannot guarantee that the second season of the show will in fact air or have the same effect on our business. If we
do not receive lasting benefits from these and future shows, or if the show is poorly received or cancelled, it
could have a negative effect on our business or our stock price.
Because we generate substantially all of our revenue from online family history resources,
particularly in the United States and United Kingdom, a decline in demand for our services or for
online family history resources in general, and particularly of the United States and United
Kingdom, could cause our revenue to decline.
We generate substantially all of our revenue from our online family history services, and we
expect that we will continue to depend upon our online family history services for substantially
all of our revenue in the foreseeable future. Because we depend on our online family history
services, factors such as changes in consumer preferences for these products may have a
disproportionately greater impact on us than if we offered multiple services. The market for
online family history resources, and for consumer services in general, is subject to rapidly
changing consumer demand and trends in preferences. If consumer interest in our online family
history services declines, or if consumer interest in family history in general declines, we
would likely experience a significant loss of revenue and net income. Some of the potential
factors that could affect interest in and demand for online family history services include:
| individuals interest in, and their willingness to spend time and money, conducting family history research; | |
| availability of discretionary funds; | |
| awareness of our brand and the family history category; | |
| the appeal and reliability of our services; | |
| the price, performance and availability of competing family history products and services; | |
| public concern regarding privacy and data security; | |
| our ability to maintain high levels of customer satisfaction; and | |
| the rate of growth in online commerce generally. |
In addition, substantially all of our revenues are from subscribers in the United States,
the United Kingdom, and to a lesser extent, Canada and Australia. Consequently, a decrease of
interest in and demand for online family history services in these countries could have a
disproportionately greater impact on us than if our geographical mix of revenue was less
concentrated.
Challenges in acquiring historical content and making it available online could adversely affect
our ability to retain and expand our subscriber base, and therefore adversely affect our
business, financial condition and results of operations.
In order to retain and expand our subscriber base, both domestically and internationally, we
must continue to expend significant resources to acquire significant amounts of additional
historical content, digitize it and make it available to our subscribers online. We face legal,
logistical, cultural and commercial challenges in acquiring new content. Relevant governmental records may be
widely dispersed and held at a national, state or local level.
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Religious and private records are even more widely dispersed. These problems often pose
particular challenges in acquiring content internationally. Desirable content may not be
available to us on favorable terms, or at all, due to competition for a
particular collection, privacy concerns relative to information contained in a given
collection or our lack of negotiating leverage with a certain content provider. For example, some
of our most popular databases include so-called vital records content namely, birth,
marriage and death records made available by certain governmental agencies. To help prevent
identity theft, or even terrorist activities, governments may attempt to restrict the release of
all or substantial portions of their vital records content, and particularly birth records, to
third parties. If these efforts are successful, it may limit or altogether prevent us from
acquiring these types of vital record content or continuing to make them available online. In
many cases, we will be the first commercial entity that may have approached the keeper of the
records, often a governmental body. In some cases, we have to lobby for legislation to be changed
to enable government or other bodies to grant us access to records.
While we own or license most of the images in our database, we generally do not own the
underlying historical documents. If owners of content have sold or licensed it for digitization
purposes on an exclusive basis to a third party, we would not be able to acquire this content.
The owners of such historical records generally can allow one or more parties to digitize those
records. If owners of content have sold or licensed the rights to digitize that content, even on
a non-exclusive basis, they often elect not to sell or license it for digitization purposes to
any other person. Therefore, if one of our competitors acquires rights to digitize a set of
content, even on a non-exclusive basis, we may be unable to acquire rights to digitize that
content. In some cases, acquisition of content involves competitive bidding, and we have in the
past and may in the future choose not to bid or may not successfully bid to acquire content
rights. In addition, a number of governmental bodies and other organizations are interested in
making historical content available for free and owners of historical records may license or sell
their records to such governmental bodies and organizations in addition to or instead of
licensing or selling their content to us. Our inability to offer vital records or other valuable
content as part of our family history research databases or the widespread availability of such
content elsewhere at lower cost or for free could result in our subscription services becoming
less valuable to consumers, which could have an adverse impact on our number of subscribers or
subscriber churn, and therefore on our business, financial condition and results of operations.
We depend in part upon third party licenses for some of our historical content, and a loss of
these licenses, or disputes regarding royalties under these licenses, could adversely affect our
ability to retain and expand our subscriber base, and therefore adversely affect our revenues,
financial condition and results of operations.
Though we own or license most of the images in our databases, in some cases on a
non-exclusive basis, we acquire a portion of our content pursuant to ongoing license agreements.
Some of these agreements have finite terms and we may not be able to renew the agreements on
terms that are advantageous to us or at all. For example, we license a significant amount of our
United Kingdom content from the United Kingdom National Archives under several license agreements
that generally have ten year terms, with varying automatic extension periods. These agreements
with the United Kingdom National Archives generally have initial expiration dates from 2012 to
2026. The agreements are generally terminable by either party for breach by the other party and
by the United Kingdom National Archives upon our insolvency or bankruptcy. Some of these
agreements permit the United Kingdom National Archives to terminate these licenses if we undergo
a change of control.
If a current or future license for a significant content collection were to be terminated,
we may not be able to obtain a new license on terms advantageous to us or at all and we could be
required to remove the relevant content from our Web sites, either immediately or after some
period of time. If a content provider were to license or sell us content in violation of that
content providers agreements with other parties, we could be required to remove that content
from our Web sites. If we were required to remove a material amount of content from our Web
sites, as a result of the termination of one or more licenses or otherwise, it could adversely
affect our business and results of operations. Some of these license agreements restrict the
manner in which we use the applicable content, which could limit our ability to leverage that
content for new uses as we expand our business. We pay royalties under some of these license
agreements, and the other party to those royalty-bearing agreements may have a right to audit the
calculation of our royalty payments. If there were to be a disagreement regarding the calculation
of royalty payments, we could be required to make additional payments under those agreements. We
also have indemnification obligations under many of these agreements. We could experience claims
in the future which, if material, could have a negative impact on our results of operations and
financial condition.
Digitizing and indexing new content can take a significant amount of time and expense, and can
expose us to risks associated with the loss or damage of historical documents. Our inability to
maintain or acquire content or make new content available online in a timely and cost-effective
manner, or liability for loss of historical documents, could have an adverse effect on our
business, financial condition and results of operations.
Digitizing and indexing new historical content can take a significant amount of time and
expense and we generally incur the expenses related to such content significantly in advance of
the time we can make it available to our subscribers. We have invested approximately $95 million
in content to date and expect to continue to spend significant resources on content. Increases in
the cost or time required to digitize and index new content could harm our financial results.
Currently, two transcription vendors perform
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substantially all of our data transcription as
measured by cost. We do not have long-term contracts with any of our transcription vendors. If we
were to replace one of these transcription vendors for any reason, we would be required to
provide extensive
training to the new vendor, which could delay our ability to make our new content available
to our subscribers, and our relationships with the new transcription vendors may be on financial
or other terms less favorable to us than our existing arrangements. Our inability to maintain or
acquire content or to make new content available online in a timely and cost-effective manner
would have an adverse effect on our business, financial condition and results of operations.
In addition, if we acquire content that ultimately generates only minimal subscriber
interest, the cost of acquiring and processing that content may exceed the incremental revenues
produced by the content, which would adversely affect our profitability.
While we are digitizing content, we may be in possession of valuable and irreplaceable
original historical documents. While we maintain insurance with respect to such documents, any
loss or damage to such documents, while in our possession, could cause us significant expense and
could have a material adverse effect on our reputation and the potential willingness of content
owners to sell, license or lend their content to us.
We face competition from a number of different sources, and our failure to compete effectively
with current and future competitors could adversely affect our ability to retain and expand our
subscriber base, and therefore adversely impact our revenues, results of operations and financial
condition.
We face competition in our business from a variety of online and offline organizations, some
of which provide genealogical records free of charge. We expect competition to increase in the
future. We generally compete on the basis of content, technology, ease of use, brand recognition,
quality and breadth of products, service and support, price and the number of network users with
whom other users can collaborate.
Ancestry.com and our similar international Web sites face competition from:
| FamilySearch, and its Web site FamilySearch.org, a genealogy organization that is part of The Church of Jesus Christ of Latter-day Saints. FamilySearch has an extensive collection of paper and microfilm records. FamilySearch has digitized a large quantity of these records and has published them online at FamilySearch.org, where it makes them available to the public for free and through thousands of family history centers located throughout the world. FamilySearch is a well funded organization and is undertaking a massive digitization project to bring most of its collection online. | |
| Commercial entities, including online genealogical research services, library content distributors, search engines and portals, retailers of books and software related to genealogical research and family tree creation and family history oriented social networking Web sites. | |
| Non-profit entities and organizations, genealogical societies, governments and agencies that may make vital statistics or other records available to the public for free. |
We expect our competition to grow, and our competitors may include other Internet-based and
offline businesses, governments and other entities. Our current and future competitors may have
greater resources, more well-established brand recognition or more sophisticated technologies,
such as search algorithms, than we do or may more easily obtain relevant records in international
markets. Additionally, our current and future competitors may offer new categories of content,
products or services before us, or at lower prices, which may give them a competitive advantage
in attracting subscribers. Our current and future competitors may make historical records
available online at no cost or on an advertising-supported basis rather than a subscription
basis. Our future competitors and their products and services may be superior to any of our
current competition. There has recently been some consolidation in our industry, and such
consolidation could also increase competition in the future, including competition with respect
to acquisition of content, exclusivity of content or pricing. To compete effectively, we may need
to expend significant resources on content acquisition, technology or marketing and advertising,
which could reduce our margins and have a material adverse effect on our business, financial
condition and results of operations.
Our
failure to attract, integrate and retain highly qualified personnel in the future could
harm our business.
To execute our growth plan, we must attract and retain a relatively large number of highly
qualified personnel. Competition for these employees is intense, and we may not be successful in
attracting and retaining qualified personnel. We have from time to time in the past experienced,
and we expect to continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. Many of the companies with which we compete
for experienced personnel have greater resources than we have. In addition, in making employment
decisions, particularly in the Internet and high-technology industries, job candidates often
consider the value of the stock options or other equity awards they may receive in connection
with their employment. Accounting principles generally accepted in the United States relating to
the expensing of stock options may
discourage us from granting the size or type of stock option awards that job candidates may
require to join our company. If we fail to attract new personnel, or fail to retain and motivate
our current personnel, our business and future growth prospects could be severely harmed.
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Our growth could strain our personnel, technology and infrastructure resources, and if we are
unable to implement appropriate controls and procedures to manage our growth, and hire and
integrate appropriate personnel, we may not be able to successfully implement our business plan.
Our growth in operations has placed a significant strain on our management, administrative,
technological, operational and financial infrastructure. Anticipated future growth, including
growth related to the broadening of our product and service offerings and our expansion into new
geographical areas, will continue to place similar strains on our personnel, technology and
infrastructure. We have hired a significant number of new employees in 2010, and we plan to hire
additional personnel in the near future. Particularly when adding staff quickly, we may not make
optimal hiring decisions or may not integrate personnel effectively. A sudden increase in our
number of registered users could strain our capacity and result in Web site performance issues.
Our success will depend in part upon the management ability of our officers with respect to
growth opportunities. To manage the expected growth of our operations, we will need to continue
to improve our operational, financial, technological and management controls and our reporting
systems and procedures. Additional personnel and capital investments will increase our cost base,
which will make it more difficult for us to offset any future revenue shortfalls by offsetting
expense reductions in the short term. If we fail to successfully manage our growth, it could
adversely affect our business, financial condition and results of operations.
Competitive pricing pressures could cause us to fail to retain existing or attract new
subscribers and harm our revenues and results of operations.
Demand for our products and services is sensitive to price. Many external factors, including
our marketing, content acquisition and technology costs and our current and future competitors
pricing and marketing strategies, can significantly affect our pricing strategies, particularly
in markets outside the United States. Some of our competitors provide genealogical records free
of charge. If we fail to meet our subscribers pricing expectations, we could fail to retain
existing or attract new subscribers, either of which would harm our business and results of
operations. Changes in our pricing strategies could have a significant impact on our revenues,
financial condition and results of operations.
Any significant disruption in service on our Web sites or in our computer systems, which are
currently hosted primarily by a single third-party, could damage our reputation and result in a
loss of subscribers, which would harm our business and operating results.
Registered users and subscribers access our service through our Web sites, where our family
history research databases are located, and our internal billing software and operations are
integrated with our product and service offerings. Our brand, reputation and ability to attract,
retain and serve our subscribers depend upon the reliable performance of our Web sites, network
infrastructure, content delivery processes and payment systems. We have experienced interruptions
in these systems in the past, including server failures that temporarily slowed down our Web
sites performance and users access to content, or made our Web sites inaccessible, and we may
experience interruptions in the future. Interruptions in these systems, whether due to system
failures, computer viruses or physical or electronic break-ins, could affect the security or
availability of our Web sites and prevent our registered users from accessing our data and using
our products and services. Problems with the reliability or security of our systems may require
disclosure to our lenders and could harm our reputation, and damage to our reputation and the
cost of remedying these problems could negatively affect our business, financial condition and
results of operations.
Substantially all of our communications, network and computer hardware used to operate our
Web sites are co-located in a facility in Utah. We do not own or control the operation of this
facility. We have established a disaster recovery facility located at a third-party facility in
Denver, Colorado. Our systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and
physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of
the foregoing events could result in damage to our systems and hardware or could cause them to
fail completely, and our insurance may not cover such events or may be insufficient to compensate
us for losses that may occur. Our systems are not completely redundant, so a failure of our
system at our primary site could result in reduced functionality for our registered users, and a
total failure of our systems at both sites could cause our Web sites to be inaccessible by our
registered users. Problems faced by our third-party Web hosting provider, with the
telecommunications network providers with whom it contracts or with the systems by which it
allocates capacity among its customers, including us, could adversely affect the experience of
our subscribers. Our third-party Web hosting provider could decide to close its facilities
without adequate notice. In addition, any financial difficulties, such as bankruptcy
reorganization, faced by our third-party Web hosting provider or any of the service providers
with whom it contracts may have negative effects on our business, the nature and extent of which
are difficult to predict. Additionally, if our third-party Web hosting provider is unable to keep
up with our growing
needs for capacity, this could have an adverse effect on our business. Any errors, defects,
disruptions or other performance problems with our services could harm our reputation and have an
adverse effect on our business, financial condition and results of operations.
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Businesses or technologies we acquire could prove difficult to integrate, disrupt our ongoing
business, dilute stockholder value or have an adverse effect on our results of operations.
As part of our business strategy, we may engage in acquisitions of businesses or
technologies to augment our organic or internal growth, as we did in July 2010, when we acquired
Genline, in August 2010 when we acquired ProGenealogists. and in October 2010 when we
acquired iArchives. While we have engaged in some acquisitions in the past, we do not have
extensive experience with integrating and managing acquired businesses or assets. Acquisitions
involve challenges and risks in negotiation, execution, valuation and integration. Moreover, we
may not be able to find suitable acquisition opportunities on terms that are acceptable to us.
Even if successfully negotiated, closed and integrated, certain acquisitions may not advance our
business strategy, may fall short of expected return-on-investment targets or may fail. Any
recent or future acquisition could involve numerous risks including:
| potential disruption of our ongoing business and distraction of management; | |
| difficulty integrating the operations and products of the acquired business; | |
| use of cash to fund the acquisition or for unanticipated expenses; | |
| limited market experience in new businesses; | |
| exposure to unknown liabilities, including litigation against the companies we acquire; | |
| additional costs due to differences in culture, geographical locations and duplication of key talent; | |
| acquisition-related accounting charges affecting our balance sheet and operations; | |
| difficulty integrating the financial reports of the acquired business in our consolidated financial statements and implementing our internal controls in the acquired business; | |
| potential impairment of goodwill; | |
| dilution to our current stockholders from the issuance of equity securities; and | |
| potential loss of key employees or customers of the acquired company. |
In the event we enter into any acquisition agreements, closing of the transactions could be
delayed or prevented by regulatory approval requirements, including antitrust review, or other
conditions. We may not be successful in addressing these risks or any other problems encountered
in connection with any attempted acquisitions, and we could assume the economic risks of such
failed or unsuccessful acquisitions.
We face many risks associated with our plans to continue to expand our international offerings
and marketing and advertising efforts, which could harm our business, financial condition and
results of operations.
In addition to our United States and United Kingdom Web sites, since 2006, we have launched
Web sites directed at Canada, Australia, Sweden, Germany, France, Italy and China and launched
our global Mundia.com Web site. As of September 30, 2010, approximately 31% of subscribers to our
Ancestry.com Web sites, and, for the nine months ended September 30, 2010, approximately 24% of
our revenues from subscribers, were from locations outside the United States. In addition, in
July 2010, we acquired the owner and operator of the Swedish family history Web site, Genline.se.
We anticipate that our continuing international expansion will continue to entail increased
marketing and advertising of our products, services and brands, and the development of localized
Web sites throughout our geographical markets. We may not succeed in these efforts and achieve
our subscriber acquisition or other goals. For some international markets, customer preferences
and buying behaviors may be different, and we may use business models that are different from our
traditional subscription model that provides company-acquired content to subscribers. Our
revenues from new foreign markets may not exceed the costs of acquiring, establishing, marketing
and maintaining international offerings, and therefore may not be profitable on a sustained
basis, if at all. We will be subject to many of the risks of doing business internationally, including the
following:
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| difficulties in developing and marketing our offerings and brands as a result of distance, language and cultural differences; | |
| foreign currency exchange rate fluctuations; | |
| more stringent consumer and data protection laws; | |
| local socio-economic and political conditions; | |
| technical difficulties and costs associated with the localization of our service offerings; | |
| strong local competitors; | |
| lack of experience in certain geographical markets; | |
| different and conflicting legal and regulatory regimes; | |
| changes in governmental regulations; | |
| different and conflicting intellectual property laws; | |
| difficulties in staffing and managing international operations; and | |
| risk of business or user fraud. |
One or more of these factors could harm our business, financial condition and results of
operations.
If we are unable to improve market recognition of and loyalty to our brands, or if our reputation
were to be harmed, we could lose subscribers or fail to increase the number of subscribers, which
could harm our revenues, results of operations and financial condition.
We believe that maintaining and enhancing our Ancestry.com brand is critical to
our success. We believe that the importance of brand recognition and loyalty will only increase
in light of increasing competition in our markets. We plan to continue to promote our brands,
both domestically and internationally, but there is no guarantee that our selected strategies
will increase the favorable recognition of our brands. Some of our existing and potential
competitors, including search engines, media companies and government and religious institutions
have well-established brands with greater brand recognition than we have. Additionally, from time
to time, our subscribers express dissatisfaction with our service, including, among other things,
dissatisfaction with our auto-renewal and other billing policies, our handling of personal data
and the way our services operate. To the extent that dissatisfaction with our service is
widespread or not adequately addressed, our brand may be adversely impacted. If our efforts to
promote and maintain our brand are not successful, our operating results and our ability to
attract and retain subscribers may be adversely affected. In addition, even if our brand
recognition and loyalty increases, this may not result in increased use of our products and
services or higher revenues. Many of our subscribers are passionate about family history
research, and many of these subscribers participate in blogs on this topic both on our Web sites
and elsewhere. If actions we take or changes we make to our products upset these subscribers,
their blogging could negatively affect our brand and reputation.
Our future growth may differ materially from our historic growth rates and our projections, which
could harm our revenues, results of operations and financial condition.
Online family history research is a relatively new industry and our operational history in
the online family history research industry is also relatively limited. Consequently, it is
difficult to predict the ultimate size of the industry and the acceptance by the market of our
products and services. Our business strategy and projections rely on a number of assumptions,
some or all of which may be incorrect. For example, we believe that consumers will be willing to
pay for subscriptions to our online family history resources, notwithstanding the fact that some
of our current and future competitors may provide such resources free of charge. We cannot
accurately predict whether our products and services will achieve significant acceptance by
potential users in significantly larger numbers than at present. You should therefore not rely on
our historic growth rates as an indication of future growth.
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Our business could be adversely affected if our subscribers are not satisfied with our products
and services. If we lose subscribers or fail to increase the number of subscribers due to
dissatisfaction with our products and services, it could harm our revenues, results of operations
and financial condition.
Our business depends on our ability to satisfy our subscribers. Our subscribers
satisfaction may be negatively impacted by factors that are actual or perceived by them, such as
limitations in our technologies, changes in our products and services, interruptions or slowness
in online capacity of our Web sites, privacy and data security concerns, speed of search of our
online
content and relevance of search results, as well as perceived ease of search, and our
automatic subscription renewal by credit card policy, including any perceptions of credit card
fraud. If we do not handle subscriber complaints effectively, our brand and reputation may
suffer, we may lose our subscribers confidence, and they may choose not to renew their
subscriptions. Complaints or negative publicity about our products, services or billing practices
could adversely impact our business, financial condition and results of operations.
If we are unable to continually enhance our products and services and adapt them to technological
changes and subscriber needs, we may not remain competitive and our business may fail to grow or
decline.
Our business is rapidly changing. To remain competitive, we must continue to provide
relevant content and enhance and improve the functionality and features of our products and
services. If we fail to do so, or if competitors introduce new solutions embodying new
technologies, our existing products and services may become obsolete. Our future success will
depend, among other things, on our ability to:
| anticipate demand for new products and services; | |
| enhance our existing solutions, capacity and processing speed; and | |
| respond to technological advances on a cost-effective and timely basis. |
Developing the technologies in our products entails significant technical and business
risks. We may use new technologies ineffectively, or we may fail to adapt our products and
services to the demands of our subscribers. If we face material delays in introducing new or
enhanced solutions, our subscribers may forego the use of our solutions in favor of those of our
competitors.
Undetected product or service errors or defects could result in the loss of revenues, delayed
market acceptance of our products or services or claims against us.
We offer a variety of Internet-based services and a software product, Family Tree Maker, all
of which are complex and frequently upgraded. Our Internet-based services and software product
may contain undetected errors, defects, failures or viruses, especially when first introduced or
when new versions or enhancements are released. Despite product testing, our products, or third
party products that we incorporate into ours, may contain undetected errors, defects or viruses
that could, among other things:
| require us to make extensive changes to our subscription services or software product, which would increase our expenses; | |
| expose us to claims for damages; | |
| require us to incur additional technical support costs; | |
| cause a negative registered user reaction that could reduce future sales; | |
| generate negative publicity regarding us and our subscription services and software product; or | |
| result in subscribers delaying their subscription or software purchase or electing not to renew their subscriptions. |
Any of these occurrences could have a material adverse effect upon our business, financial
condition and results of operations.
Privacy concerns could require us to incur significant expense and modify our operations in a
manner that could result in restrictions and prohibitions on our use of certain information, and
therefore harm our business.
As part of our business, we make biographical and historical data available through our Web
sites, we use registered users personal data for internal purposes and we host Web sites and
message boards, among other things, that contain content supplied by third parties. In addition,
in connection with our Ancestry.com DNA product, we obtain biological DNA samples used for
genetic testing. For privacy or security reasons, privacy groups, governmental agencies and
individuals may seek to restrict or prevent our use or publication of certain biological or
historical information pertaining to individuals, particularly living persons. We will also face
additional privacy issues as we expand into other international markets, as many nations have
privacy protections more stringent than those in the United States. We have incurred, and will
continue to incur, expenses to comply with privacy and security standards and protocols imposed
by law, regulation, industry standards or contractual obligations. Increased domestic or
international regulation of data utilization and distribution practices, including
self-regulation, could require us to modify our operations and incur significant expense, which
could have an adverse effect on our business, financial condition and results of
operations.
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Our possession and use of personal information presents risks and expenses that could harm our
business. Unauthorized disclosure or manipulation of such data, whether through breach of our
network security or otherwise, could expose us to costly litigation and damage our reputation.
Maintaining our network security is of critical importance because our online systems store
confidential registered user, employee and other sensitive data, such as names, addresses, credit
card numbers and other personal information. In particular, a substantial majority of our
subscribers use credit and debit cards to purchase our products and services. If we or our
processing vendors were to have problems with our billing software, it could have an adverse
effect on our subscriber satisfaction and could cause one or more of the major credit card
companies to disallow our continued use of their payment services. In addition, if our billing
software fails to work properly and, as a result, we do not automatically charge our subscribers
credit cards on a timely basis or at all, our business, financial condition and results of
operations could be adversely affected.
In addition, our online systems store the content that our registered users upload onto our
Web sites, such as family records and photos. This content is often personally meaningful, and
our registered users may rely on our online system to store digital copies of such content. If we
were to lose such content, if our users private content were to be publicly available or if
third parties were able to access and manipulate such content, we may face liability and harm to
our brand and reputation.
We and our vendors use commercially available encryption technology to transmit personal
information when taking orders. We use security and business controls to limit access and use of
personal information, including registered users uploaded content. However, third parties may be
able to circumvent these security and business measures by developing and deploying viruses,
worms and other malicious software programs that are designed to attack or attempt to infiltrate
our systems and networks. In addition, employee error, malfeasance or other errors in the
storage, use or transmission of personal information could result in a breach of registered user
or employee privacy.
If third parties improperly obtain and use the personal information of our registered users
or employees, we may be required to expend significant resources to resolve these problems. A
major breach of our network security and systems could have serious negative consequences for our
businesses, including possible fines, penalties and damages, reduced demand for our products and
services, an unwillingness of subscribers to provide us with their credit card or payment
information, an unwillingness of registered users to upload family records or photos onto our Web
sites, harm to our reputation and brand and loss of our ability to accept and process subscriber
credit card orders. Similarly, if a well-publicized breach of data security at any other major
consumer Web site were to occur, there could be a general public loss of confidence in the use of
the Internet for commercial transactions. Any of these events could have material adverse effects
on our business, financial condition and results of operations.
Any claims related to activities of registered users and the content they upload could result in
expenses that could harm our results of operations and financial condition.
Our registered users often upload their own content onto our Web sites. The terms of use of
such content are set forth in the terms and conditions of our Web sites and a submission
agreement to which registered users must agree when they upload their content. Disputes or
negative publicity about the use of such content could make members more reluctant to upload
personal content or harm our reputation. We do not review or monitor content uploaded by our
registered users, and could face claims arising from or liability for making any such content
available on our Web sites. In addition, our collaboration tools and other features of our site
allow registered users to contact each other. While registered users can choose to remain
anonymous in such communications, registered users may choose to engage with one another without
anonymity. If any such contact were to lead to fraud or other harm, we may face claims against us
and negative publicity. Litigation to defend these claims or efforts to counter any negative
publicity could be costly and any other liabilities we incur in connection with any such claims
may harm our business, financial condition and results of operations.
Increases in credit card processing fees would increase our operating expenses and adversely
affect our results of operations, and the termination of our relationship with any major credit
card company would have a severe, negative impact on our ability to collect revenues from
subscribers.
The substantial majority of our subscribers pay for our products and services using credit
cards. From time to time, the major credit card companies or the issuing banks may increase the
fees that they charge for each transaction using their cards. An increase in those fees would
require us to either increase the prices we charge for our products and services, or suffer a
negative impact on our profitability, either of which could adversely affect our business,
financial condition and results of operations.
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In addition, our credit card fees may be increased by credit card companies if our
chargeback rate or the refund rate exceeds certain minimum thresholds. If we are unable to
maintain our chargeback rate at acceptable levels, our credit card fees for
chargeback transactions, or for all credit card transactions, may be increased, and, if the
problem significantly worsens, credit card companies may further increase our fees or terminate
their relationships with us. Any increases in our credit card fees could adversely affect our
results of operations, particularly if we elect not to raise our subscription rates to offset the
increase. The termination of our ability to process payments on any major credit or debit card
would significantly impair our ability to operate our business.
Our operating results depend on numerous factors and may fluctuate from period to period,
which could make them difficult to predict.
Our quarterly and annual operating results are tied to certain financial and operational
metrics that have fluctuated in the past and may fluctuate significantly in the future. As a
result, you should not rely upon our past operating results as indicators of future performance.
Our operating results depend on numerous factors, many of which are outside of our control. In
addition to the other risks described in this Risk Factors section, the following risks could
cause our operating results to fluctuate:
| our ability to retain existing subscribers and attract new subscribers; | ||
| the mix of annual and monthly subscribers at any given time and the mix of packages to which they subscribe; | ||
| the success and timing of television programming relating to family history and its impact on our market and our marketing expenditures; | ||
| timing and amount of costs of new and existing marketing and advertising efforts; | ||
| timing and amount of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure, including content acquisition and international expansion costs; | ||
| the cost and timing of the development and introduction of new product and service offerings by us or our competitors; | ||
| downward pressure on the pricing of our subscriptions; | ||
| system failures, security breaches or Web site downtime; | ||
| fluctuations in the usage of our Web sites; and | ||
| fluctuations in foreign currency exchange rates. |
For these or other reasons, the results of any prior quarterly or annual periods should not
be relied upon as indications of our future performance and our revenue and operating results in
the future may differ materially from the expectations of management or investors.
If government regulation of the Internet or other areas of our business changes or if consumer
attitudes toward use of the Internet change, we may need to change the manner in which we conduct
our business in a manner that is less profitable or incur greater operating expenses, which could
harm our results of operations.
The adoption, modification or interpretation of laws or regulations relating to the Internet
or other areas of our business could adversely affect the manner in which we conduct our business
or the overall popularity or growth in use of the Internet. Such laws and regulations may cover
automatic subscription renewal, credit card processing procedures, sales and other procedures,
tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic
contracts, consumer protection, broadband residential Internet access and the characteristics and
quality of services. In foreign countries, such as countries in Europe, such laws may be more
restrictive than in the United States. It is not clear how existing laws governing issues such as
property ownership, sales and other taxes, libel and personal privacy apply to the Internet. If
we are required to comply with new regulations or legislation or new interpretations of existing
regulations or legislation, this compliance could cause us to incur additional expenses, make it
more difficult to renew subscriptions automatically, make it more difficult to attract new
subscribers or otherwise alter our business model. Any of these outcomes could have a material
adverse effect on our business, financial condition or results of operations.
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Our new credit facility contains a number of financial and operating covenants which could limit our flexibility in operating our business.
Our new credit facility contains a number of financial and operating covenants that could
limit our flexibility in operating our business, including a covenant to maintain a specified ratio
of a measure of certain indebtedness to a measure of EBITDA
(as EBITDA is defined in the new credit facility)
and a covenant to maintain a specified
ratio of a measure of EBITDA to a measure of fixed charges.
To date,
we have not drawn any funds under the new credit facility. Our future indebtedness
could:
| make us more vulnerable to unfavorable economic conditions; | ||
| make it more difficult to obtain additional financing in the future for working capital, capital expenditures or other general corporate purposes; | ||
| limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate; | ||
| require us to dedicate or reserve a large portion of our cash flow from operations for making payments on our indebtedness, which would prevent us from using it for other purposes; | ||
| make us susceptible to fluctuations in market interest rates that affect the cost of our borrowings to the extent that our variable rate debt is not covered by interest rate derivative agreements; and | ||
| make it more difficult to pursue strategic acquisitions, alliances and collaborations. |
Our obligations under the new credit facility are secured by collateral, which includes
substantially all of our assets, including our intellectual property. If we draw funds under the
new credit facility and we are not able to satisfy our obligations under the new credit facility,
the creditors could exercise their rights under the new credit facility, which include taking
control of the collateral, including our intellectual property, which would have a material adverse
effect on our business.
In addition, we cannot assure you that our lenders will have sufficient
liquidity to forward funds to us if and when we try to draw funds under
the new credit facility.
Our revenues may be adversely affected if we are required to charge sales taxes in additional
jurisdictions and/or other taxes for our products and services.
We collect or have imposed upon us sales or other taxes related to the products and services
we sell in certain states and other jurisdictions. Additional states or one or more countries or
other jurisdictions may seek to impose sales or other tax collection obligations on us in the
future or states or jurisdictions in which we already pay tax may increase the amount of taxes we are required to pay.
A successful assertion by any country, state or other jurisdiction in which we do
business that we should be collecting sales or other taxes on the sale of our products and
services could, among other things, create significant administrative burdens for us, result in
substantial tax liabilities for past sales, discourage registered users from purchasing from us
or otherwise substantially harm our business and results of operations.
We face risk associated with currency exchange rate fluctuations, which could adversely affect
our operating results.
For the nine month period ended September 30, 2010, approximately 21% of our total revenues
were received, and approximately 8% of our total expenses were paid, in currencies other than the
United States dollar, such as the British pound sterling, the Canadian dollar and the Australian
dollar. As a result, we are at risk for exchange rate fluctuations between such foreign
currencies and the United States dollar, which could affect our results of operations. We attempt
to limit our exposure by paying our operating expenses incurred in foreign jurisdictions with
revenues received in the applicable currency, but if we do not have enough local currency to pay
all our expenses in that currency, we are exposed to currency exchange rate risk with respect to
those expenses. We are also exposed to exchange rate risk with respect to our profits earned in
foreign currency. Even if we were to implement hedging strategies to mitigate foreign currency
risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and
would involve costs and risks of their own, such as ongoing management time and expertise,
external costs to implement the strategies and potential accounting implications.
Our business may be significantly impacted by a change in the economy, including any resulting
effect on consumer spending.
Our business may be affected by changes in the economy generally, including any resulting
effect on consumer spending specifically. Our products and services are discretionary purchases,
and consumers may reduce their discretionary spending on our products and services during an
economic downturn such as the recent economic downturn. Although we have not experienced a
material increase in subscription cancellations or a material reduction in subscription renewals,
we may yet experience such an increase or reduction in the future, especially if employment and
personal income do not improve. Conversely, consumers may spend more time using the Internet
during an economic downturn and may have less time for our products and services in a period of
economic growth. In addition, media prices may increase in a period of economic growth, which
could significantly increase our marketing and advertising expenses. As a result, our business,
financial condition and results of operations may be significantly affected by changes in the
economy generally.
The loss of one or more of our key personnel could harm our business.
We depend on the continued service and performance of our key personnel, including Timothy
Sullivan, our President and Chief Executive Officer. We do not maintain key man insurance on any
of our officers or key employees. We also do not have long-term employment agreements with any of
our officers or key employees. In addition, much of our key technology and systems are
custom-made for our business by our personnel. The loss of key personnel, including key members
of our management team, as well as certain of our key marketing, product development or
technology personnel could disrupt our operations and have an adverse effect on our ability to
grow our business.
We are subject to additional regulatory compliance matters as a result of becoming a public
company, which compliance includes Section 404 of the Sarbanes-Oxley Act of 2002, and our
management has limited experience managing a public company. Failure to comply with these
regulatory matters could harm our business.
In November 2009, we became a public company and have incurred and will continue to incur
significant legal, accounting and other expenses that we did not incur as a private company. Our
management team and other personnel are devoting a substantial amount of time to new compliance
initiatives and to meeting the obligations that are associated with being a public company, and
we may not successfully or efficiently manage this transition. Rules and regulations such as the
Sarbanes-Oxley Act of 2002 may continue to increase our legal and finance compliance costs and
make some activities more time-consuming than in the past. Furthermore, Section 404 of the Sarbanes-Oxley Act of
2002 requires that our management report on, and our independent auditors attest to, the
effectiveness of our internal control structure and procedures for financial reporting in our
Annual Report on Form 10-K for the fiscal year ending December 31, 2010.
We may not be able to successfully complete the procedures and certification
and attestation requirements of Section 404 by the time we will be required to do so. If we fail
to do so, or if in the future our chief executive officer, chief financial officer or independent
registered public accounting firm determines that our internal control over financial reporting
is not effective, we could be subject to
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sanctions or investigations by The Nasdaq Stock Market,
SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer,
and this could cause a decline in the market price of our stock. Furthermore, whether or not we
comply
with Section 404, any failure of our internal controls could have a material adverse effect
on our stated results of operations and harm our reputation. If we are unable to implement
necessary procedures or changes effectively or efficiently, it could harm our operations,
financial reporting or financial results and could result in an adverse opinion on internal
control over financial reporting from our independent registered public accounting firm. We
continually seek to identify, assess, monitor, mitigate and manage risk in our business. As we
assess strategic, operational, financial, and legal risks on a regular basis, we may discover
additional risks of which we are not currently aware, any of which could have a material adverse
effect on our business, financial condition and results of operations. While we currently have a
sufficient number of independent board members to assign to committees to meet the listing
standards of The Nasdaq Stock Market, we require these directors to serve on multiple committees
to achieve compliance. Although we plan to seek additional independent board members, our failure
to attract such individuals could impose undue strain on our current independent directors.
Our reported financial results may be adversely affected by changes in accounting principles
applicable to us.
Generally accepted accounting principles in the United States are subject to interpretation
by the FASB, the American Institute of Certified Public Accountants, the SEC and various bodies
formed to promulgate and interpret appropriate accounting principles. A change in these
principles or interpretations could have a significant effect on our reported financial results,
and could affect the reporting of transactions completed before the announcement of a change. In
addition, the SEC has announced a multi-year plan that could ultimately lead to the use of
International Financial Reporting Standards by United States issuers in their SEC filings. Any
such change could have a significant effect on our reported financial results.
Expenses or liabilities resulting from litigation could adversely affect our results of
operations and financial condition.
From time to time, we may be subject to claims or litigation. Any such claims or litigation
may be time-consuming and costly, divert management resources, require us to change our products
and services, require us to accept returns of software products, or have other adverse effects on
our business. Any of the foregoing could have a material adverse effect on our results of
operations and could require us to pay significant monetary damages. For example, in August 2009,
we received a letter from Shutterfly, Inc., alleging infringement of certain of their patents by
our operation of the MyCanvas.com Web site. While MyCanvas.com revenues have represented a small
percentage of our total revenue and we do not believe that this claim will be resolved in a
manner that would have a material adverse effect on our business, intellectual property
litigation is subject to inherent uncertainties, and there can be no assurance that the expenses
associated with defending any litigation or the resolution of this dispute would not have a
material adverse impact on our results of operations or cash flows. We cannot assure you of the
ultimate outcome of any legal proceeding or contingency in which we are or may become involved.
Risks Related to Intellectual Property
If our intellectual property and technologies are not adequately protected to prevent use or
appropriation by our competitors, the value of our brand and other intangible assets may be
diminished, and our business may be adversely affected.
Our future success and competitive position depend in part on our ability to protect our
proprietary technologies and intellectual property. We rely and expect to continue to rely on a
combination of confidentiality and license agreements with our employees, consultants and third
parties with whom we have relationships, as well as trademark, copyright, patent and trade secret
protection laws, to protect our proprietary technologies and intellectual property. In the United
States, we currently have several patents issued, and we have a number of patents pending
relating to digitization, indexing, storage, correlation, search and display of content.
Ancestry.com, myfamily.com and Family Tree Maker are among our registered trademarks. In
addition, in the United States, we have filed various trademark applications for each of our
products and services and for aspects of our technologies, and we have also filed numerous
trademark applications in certain foreign countries for the Ancestry, Ancestry.com and Mundia
trademarks, many of which have proceeded to registration. Many of our trademarks contain words or
terms having a somewhat common usage and, as a result, we may have difficulty registering them in
certain jurisdictions. We also possess intellectual property rights in aspects of our digital
content, search technology, software products and digitization and indexing processes. However,
our digital content is not protected by any registered copyrights or other registered
intellectual property or statutory rights. Rather, our digital content is protected by user
agreements that limit access to and use of our data, and by our proprietary indexing and search
technology that we apply to make our digital content searchable. Compliance with use restrictions
is difficult to monitor, and our proprietary rights in our digital content databases may be more
difficult to enforce than other forms of intellectual property rights.
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There can be no assurance that the steps we take will be adequate to protect our
technologies and intellectual property, that our patent and trademark applications will lead to
issued patents and registered trademarks in all instances, that others will not develop or patent
similar or superior technologies, products or services, or that our patents, trademarks and other
intellectual property will not be challenged, invalidated or circumvented by others. Furthermore,
the intellectual property laws of other countries at which our Web sites are or may be in the
future be directed may not protect our products and intellectual property
rights to the same extent as the laws of the United States. The legal standards relating to
the validity, enforceability and scope of protection of intellectual property rights in
Internet-related industries are uncertain and still evolving, both in the United States and in
other countries. In addition, third parties may knowingly or unknowingly infringe our patents,
trademarks and other intellectual property rights, and litigation may be necessary to protect and
enforce our intellectual property rights. Any such litigation could be very costly and could
divert management attention and resources. If the protection of our technologies and intellectual
property is inadequate to prevent use or appropriation by third parties, the value of our brand
and other intangible assets may be diminished and competitors may be able to more effectively
mimic our subscription services and methods of operations. Any of these events would have a
material adverse effect on our business, financial condition and results of operations.
We also expect that the more successful we are, the more likely it will become that
competitors will try to develop products that are similar to ours, which may infringe on our
proprietary rights. It may also be more likely that competitors will claim that our products and
services infringe on their proprietary rights. If we are unable to protect our proprietary rights
or if third parties independently develop or gain access to our or similar technologies, our
business, revenue, reputation and competitive position could be harmed.
Confidentiality agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information. Failure to protect our proprietary information
could make it easier for third parties to compete with our products and harm our business.
A substantial amount of our tools and technologies are protected by trade secret laws. In
order to protect our proprietary technologies and processes, we rely in part on security
measures, as well as confidentiality agreements with our employees, licensees, independent
contractors and other advisors. These measures and agreements may not effectively prevent
disclosure of confidential information, including trade secrets, and may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information. We could potentially
lose future trade secret protection if any unauthorized disclosure of such information occurs. In
addition, others may independently discover our trade secrets and proprietary information, and in
such cases we could not assert any trade secret rights against such parties. Laws regarding trade
secret rights in certain markets in which we operate may afford little or no protection to our
trade secrets. The loss of trade secret protection could make it easier for third parties to
compete with our products by copying functionality. In addition, any changes in, or unexpected
interpretations of, the trade secret and other intellectual property laws in any country in which
we operate may compromise our ability to enforce our trade secret and intellectual property
rights. Costly and time-consuming litigation could be necessary to enforce and determine the
scope of our proprietary rights, and failure to obtain or maintain trade secret protection could
adversely affect our business, revenue, reputation and competitive position.
Intellectual property claims against us could be costly and result in the loss of significant
rights related to, among other things, our Web sites, content indexes, and marketing and
advertising activities.
Trademark, copyright, patent and other intellectual property rights are important to us and
other companies. Our intellectual property rights extend to our technologies, business processes
and the content on our Web sites. We use intellectual property licensed from third parties in
merchandising our products and marketing and advertising our services. From time to time, third
parties may allege that we have violated their intellectual property rights. If there is a claim
against us for infringement, misappropriation, misuse or other violation of third party
intellectual property rights, and we are unable to obtain sufficient rights or develop
non-infringing intellectual property or otherwise alter our business practices on a timely basis,
our business and competitive position may be adversely affected. Many companies are devoting
significant resources to obtaining patents that could potentially affect many aspects of our
business. There are numerous patents that broadly claim means and methods of conducting business
on the Internet. We have not exhaustively searched patents relevant to our technologies and
business. If we are forced to defend ourselves against intellectual property infringement claims,
whether they are with or without merit or are determined in our favor, we may face costly
litigation, diversion of technical and management personnel, limitations on our ability to use
our current Web sites or inability to market or provide our products or services. As a result of
any such dispute, we may have to develop non-infringing technology, pay damages, enter into
royalty or licensing agreements, cease providing certain products or services, adjust our
merchandizing or marketing and advertising activities or take other actions to resolve the
claims. These actions, if required, may be costly or unavailable on terms acceptable to us. In
addition, many of our co-branding, distribution and other partnering agreements require us to
indemnify our partners for third-party intellectual property infringement claims, which could
increase the cost to us of an adverse ruling in such an action.
In addition, as a publisher of online content, we face potential liability for negligence,
copyright, patent or trademark infringement or other claims based on the nature and content of
data and materials that we publish or distribute. These claims could potentially arise with
respect to both company-acquired content and user-generated content. Litigation to defend these
claims could be costly and any other liabilities we incur in connection with the claims may harm
our business, financial condition and results of operations.
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If we are unable to protect our domain names, our reputation and brand could be affected
adversely, which would adversely affect our subscriber base, and therefore adversely affect our
revenues.
We have registered domain names for Web site destinations that we use in our business, such
as Ancestry.com, Genealogy.com and myfamily.com. However, if we are unable to maintain our rights
in these domain names, our competitors could capitalize on our brand recognition by using these
domain names for their own benefit. In addition, our competitors could capitalize on our brand
recognition by using domain names similar to ours. Domain names similar to ours have been
registered in the United States and elsewhere, and in many countries the top-level domain names
ancestry or genealogy are owned by other parties. Though we own the ancestry.co.uk domain
name in the United Kingdom, we might not be able to, or may choose not to, acquire or maintain
other country-specific versions of the ancestry and genealogy domain names. Further, the
relationship between regulations governing domain names and laws protecting trademarks and
similar proprietary rights varies from jurisdiction to jurisdiction and is unclear in some
jurisdictions. 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 brand or our trademarks
or service marks. Protecting and enforcing our rights in our domain names and determining the
rights of others may require litigation, which could result in substantial costs and divert
management attention. We may not prevail if any such litigation is initiated.
Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could
delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or
preventing a change of control or changes in our management. For example, our board of directors
has the authority to issue up to five million shares of preferred stock in one or more series and
to fix the powers, preferences and rights of each series without stockholder approval. The
ability to issue preferred stock could discourage unsolicited acquisition proposals or make it
more difficult for a third party to gain control of our company, or otherwise could adversely
affect the market price of our common stock. Our certificate of incorporation requires that any
action to be taken by stockholders must be taken at a duly called meeting of stockholders, which
may only be called by our board of directors, the chairperson of our board of directors or the
chief executive officer, with the concurrence of a majority of our board of directors, and may
not be taken by written consent. Our bylaws also require that any stockholder proposals or
nominations for election to our board of directors meet specific advance notice requirements and
procedures, which make it more difficult for our stockholders to make proposals or director
nominations. In addition, we have a classified board of directors with three-year staggered
terms, which could delay the ability of stockholders to change membership of a majority of our
board of directors.
Furthermore, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict
large stockholders, in particular those owning 15% or more of our outstanding voting stock, from
merging or combining with us. These provisions in our certificate of incorporation and bylaws and
under Delaware law could discourage potential takeover attempts and could reduce the price that
investors might be willing to pay for shares of our common stock in the future and result in our
market price being lower than it would without these provisions.
Risks Related to our Corporate Structure
Our share price may be volatile due to fluctuations in our operating results and other factors,
each of which could cause our stock price to decline.
The market price of shares of our common stock could be subject
to wide fluctuations in response to many risks listed herein and others beyond our control, including:
| actual or anticipated fluctuations in our key operating metrics, financial condition and operating results; | |
| a greater than expected gain or loss of existing subscribers; | |
| a change in one or more of our key metrics; | |
| actual or anticipated changes in our growth rate; | |
| issuance of new or updated research or reports by securities analysts; | |
| our announcement of actual results for a fiscal period that are higher or lower than projected or expected results or our announcement of revenue or earnings guidance that is higher or lower than expected; |
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| fluctuations in the valuation of companies perceived by investors to be comparable to us; | |
| share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; | |
| sales or expected sales of additional common stock; | |
| announcements from, or operating results of, our competitors; or | |
| general economic and market conditions. |
Furthermore, during the last few years, the stock markets have experienced extreme price and
volume fluctuations and the market prices of some equity securities continue to be volatile.
These fluctuations often have been unrelated or disproportionate to the operating performance of
these companies. These broad market and industry fluctuations, as well as general economic,
political and market conditions such as recessions, interest rate changes or international
currency fluctuations, may cause the market price of shares of our common stock to decline. In
the past, companies that have experienced volatility in the market price of their stock have been
subject to securities class action litigation. We may be the target of this type of litigation in
the future. Securities litigation against us could result in substantial costs and divert our
managements attention from other business concerns, which could seriously harm our business.
Our stock price may be affected by coverage by securities analysts.
The trading of our common stock is influenced by the reports and research that industry or
securities analysts publish about us or our business. If analysts stop covering us, or if too few
analysts cover us, the trading price of our stock would likely decrease. If one or more of the
analysts who cover us downgrade our stock, our stock price will likely decline. If one or more of
these analysts cease coverage of our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause our stock price or trading
volume to decline.
Our principal stockholder and its affiliates own a majority of our outstanding common stock, and
their interests may not always coincide with the interests of the other holders of our common
stock.
As of September 30, 2010, Spectrum Equity Investors V, L.P. and certain of its affiliates
beneficially owned in the aggregate shares representing approximately 52% of our outstanding
voting power. Two persons associated with Spectrum Equity Investors V, L.P. currently serve on
our board of directors. As a result, Spectrum Equity Investors V, L.P. and certain of its
affiliates effectively control all matters presented to our stockholders for approval, including
election and removal of our directors and change of control transactions. The interests of
Spectrum Equity Investors V, L.P. and certain of its affiliates may not always coincide with the
interests of the other holders of our common stock.
We do not currently intend to pay dividends on our common stock and, consequently, your ability
to achieve a return on your investment will depend on appreciation in the price of our common
stock.
We have never declared or paid any cash dividends on our common stock and do not intend to
do so for the foreseeable future. We currently intend to invest our future earnings, if any, to
finance our growth or our share repurchase program. In addition, the provisions of our credit
facility prohibit us from paying cash dividends. Therefore, you are not likely to receive any
dividends on your common stock for the foreseeable future and the success of an investment in
shares of our common stock will depend upon any future appreciation in their value. There is no
guarantee that shares of our common stock will appreciate in value or even maintain the price at
which our stockholders have purchased their shares.
Substantial sales of our common stock by our stockholders, including sales pursuant to 10b5-1
plans, could depress our stock price regardless of our operating results.
Sales of substantial amounts of our common stock in the public market, or the perception
that these sales could occur, could reduce the prevailing market prices for our common stock. On
November 10, 2009 we completed our initial public offering of approximately 7.4 million shares of
common stock on The Nasdaq Global Select Market. As of September 30, 2010, we had approximately
44.4 million shares of common stock outstanding along with vested and exercisable options to
purchase approximately 5.7 million shares of common stock. Substantially all of our outstanding
common stock is eligible for sale, subject to Rule 144 volume limitations for holders affected by
such limitations, as is common stock issuable under vested and exercisable stock options. If our
existing stockholders sell a large number of shares of our common stock or the public market
perceives that existing stockholders might sell shares of common stock, including sales pursuant
to Rule 10b5-1 plans, the market price of our common stock could decline significantly. These
sales might also make it more difficult for us to sell equity securities at a time and
price that we deem appropriate.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 4, 2009, the SEC declared effective our Registration Statement on Form S-1 (File
No. 333-160986) for our initial public offering. During the third quarter of 2010, we made
payments totaling $76.2 million on our credit facility with CIT Lending Services Corporation, as
Administrative Agent, and certain other financial institutions. Since our initial public
offering, we have made aggregate payments of $114.7 million on our credit facility. In addition,
we used $8.1 million in the third quarter of 2010 to acquire two businesses. These payments were
made with cash on hand, including the net proceeds from our initial public offering and exceed
the net offering proceeds from our initial public offering of $47.8 million after estimated
expenses.
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Item 6. Exhibits
Exhibit | ||
Number | Exhibit Description | |
4.1
|
Registration Rights Agreement, dated October 20, 2010, among Ancestry.com Inc., Century Capital Partners II, L.P., Canopy Ventures I, L.P. and certain other stockholders of iArchives, Inc. | |
4.2
|
Amendment No. 1, dated October 28, 2010, among Ancestry.com Inc., formerly known as Generations Holding, Inc., and certain Spectrum Group Stockholders to the Registration Rights Agreement, by and among Generations Holding, Inc., certain Spectrum Group Stockholders and certain Other Stockholders, dated December 5, 2007. | |
10.1
|
Credit Agreement, dated as of September 9, 2010, among Ancestry.com Operations Inc., certain domestic subsidiaries of Ancestry.com Operations Inc., Bank of America, N.A. and other lender parties thereto. | |
10.2
|
Employment Offer Letter by and between Joshua Hanna and Ancestry.com Inc., dated July 22, 2010. | |
10.3
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Timothy Sullivan and Ancestry.com Inc., dated July 20, 2009. | |
10.4
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Howard Hochhauser and Ancestry.com Inc., dated July 20, 2009. | |
10.5
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between David H. Rinn and Ancestry.com Inc., dated July 20, 2009. | |
10.6
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between William Stern and Ancestry.com Inc., dated June 29, 2009. | |
10.7
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Christopher Tracy and Ancestry.com Inc., dated July 20, 2009. | |
31.1*
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2*
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1*
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | These certifications are not deemed filed with the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Ancestry.com Inc. |
||||
Dated: November 2, 2010 | By: | /s/ Timothy Sullivan | ||
Timothy Sullivan | ||||
President and Chief Executive Officer | ||||
Dated: November 2, 2010 | By: | /s/ Howard Hochhauser | ||
Howard Hochhauser | ||||
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit | ||
Number | Exhibit Description | |
4.1
|
Registration Rights Agreement, dated October 20, 2010, among Ancestry.com Inc., Century Capital Partners II, L.P., Canopy Ventures I, L.P. and certain other stockholders of iArchives, Inc. | |
4.2
|
Amendment No. 1, dated October 28, 2010, among Ancestry.com Inc., formerly known as Generations Holding, Inc., and certain Spectrum Group Stockholders to the Registration Rights Agreement, by and among Generations Holding, Inc., certain Spectrum Group Stockholders and certain Other Stockholders, dated December 5, 2007. | |
10.1
|
Credit Agreement, dated as of September 9, 2010, among Ancestry.com Operations Inc., certain domestic subsidiaries of Ancestry.com Operations Inc., Bank of America, N.A. and other lender parties thereto. | |
10.2
|
Employment Offer Letter by and between Joshua Hanna and Ancestry.com Inc., dated July 22, 2010. | |
10.3
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Timothy Sullivan and Ancestry.com Inc., dated July 20, 2009. | |
10.4
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Howard Hochhauser and Ancestry.com Inc., dated July 20, 2009. | |
10.5
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between David H. Rinn and Ancestry.com Inc., dated July 20, 2009. | |
10.6
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between William Stern and Ancestry.com Inc., dated June 29, 2009. | |
10.7
|
Amendment No. 1, dated July 22, 2010, to Offer Letter by and between Christopher Tracy and Ancestry.com Inc., dated July 20, 2009. | |
31.1*
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2*
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1*
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | These certifications are not deemed filed with the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings. |
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