XO GROUP INC. - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - XO GROUP INC.	ex322033116.htm
EX-32.1 - EXHIBIT 32.1 - XO GROUP INC.	ex321033116.htm
EX-31.1 - EXHIBIT 31.1 - XO GROUP INC.	ex311033116.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35217

____________________________

XO GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware	13-3895178
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

195 Broadway, 25th Floor

New York, New York 10007

(Address of Principal Executive Offices and Zip Code)

(212) 219-8555

(Registrant’s 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 ý 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 ý 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 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 x
Non-Accelerated Filer o (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 ý

As of April 29, 2016, there were 26,498,703 shares of the registrant’s common stock outstanding.

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XO GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

TABLE OF CONTENTS



	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations	2
Condensed Consolidated Statements of Cash Flows	3
Notes to Condensed Consolidated Financial Statements	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk	15
Item 4. Controls and Procedures	15
PART II OTHER INFORMATION
Item 1. Legal Proceedings	15
Item 1A. Risk Factors	16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3. Defaults Upon Senior Securities	16
Item 4. Mine Safety Disclosures	16
Item 5. Other Information	16
Item 6. Exhibits	16
SIGNATURES	17

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements relating to future events and the future performance of XO Group Inc. based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “estimate,” “are positioned to,” “continue,” “project,” “guidance,” “target,” “forecast,” “anticipated” or comparable terms.

These forward-looking statements involve risks and uncertainties. Our actual results or events could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described in Item 1A (Risk Factors) in our most recent Annual Report on Form 10-K, filed with the Securities Exchange Commission on March 4, 2016, and Part II of this report. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

WHERE YOU CAN FIND MORE INFORMATION

XO Group’s corporate website is located at www.xogroupinc.com. XO Group makes available free of charge, on or through our corporate website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing to, the Securities and Exchange Commission (“SEC”). Information contained on XO Group’s corporate website is not part of this report or any other report filed with the SEC.

Unless the context otherwise indicates, references in this report to the terms “XO Group,” “we,” “our” and “us” refer to XO Group Inc., its divisions and its subsidiaries.

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PART I - FINANCIAL INFORMATION

XO GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except for Share and Per Share Data)

(Unaudited)



	March 31, 2016			December 31, 2015

ASSETS
Current assets:
Cash and cash equivalents	$	92,198		$	88,509
Accounts receivable, net of allowances of $3,136 and $2,668 at March 31, 2016 and December 31, 2015, respectively	17,598			20,475
Prepaid expenses and other current assets	5,653			5,341
Total current assets	115,449			114,325
Long-term restricted cash	2,598			2,598
Property and equipment, net	12,588			13,251
Intangibles assets, net	4,596			4,817
Goodwill	47,396			47,396
Deferred tax assets, net	11,234			11,578
Investments	2,574			2,719
Other assets	50			57
Total assets	$	196,485		$	196,741
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	9,350		$	12,163
Deferred revenue	17,808			18,640
Total current liabilities	27,158			30,803
Deferred rent	4,321			4,486
Other liabilities	1,987			1,985
Total liabilities	33,466			37,274
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized and 26,510,693 and 26,235,824 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively	266			264
Additional paid-in-capital	174,089			173,564
Accumulated deficit	(11,336		)	(14,361		)
Total stockholders’ equity	163,019			159,467
Total liabilities and stockholders’ equity	$	196,485		$	196,741

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except for Per Share Data)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
Net revenue:
Online advertising	$	26,837		$	23,916
Transactions	4,204			2,294
Merchandise	—			878
Publishing and other	4,628			5,514
Total net revenue	35,669			32,602
Cost of revenue:
Online advertising	500			354
Merchandise	—			881
Publishing and other	1,110			1,420
Total cost of revenue	1,610			2,655
Gross profit	34,059			29,947
Operating expenses:
Product and content development	10,960			9,554
Sales and marketing	11,714			10,622
General and administrative	6,197			6,090
Depreciation and amortization	1,594			1,245
Total operating expenses	30,465			27,511
Income from operations	3,594			2,436
Loss in equity interests	(144		)	(6		)
Interest and other expense, net	(1		)	(23		)
Income before income taxes	3,449			2,407
Income tax expense	424			962
Net income	$	3,025		$	1,445

Net income per share:
Basic	$	0.12		$	0.06
Diluted	$	0.12		$	0.06
Weighted average number of shares used in calculating net earnings per share:
Basic	25,263			25,174
Dilutive effect of:
Restricted stock	322			425
Options	14			25
Diluted	25,599			25,624

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,025		$	1,445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,594			1,245
Stock-based compensation expense	1,656			1,480
Deferred income taxes	344			329
Excess tax benefits from stock-based awards	(304		)	(747		)
Allowance for doubtful accounts	795			544
Other non-cash charges	160			(84		)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	2,082			(641		)
(Increase) decrease in prepaid expenses and other assets, net	(305		)	633
Decrease in accounts payable and accrued expenses	(2,509		)	(3,836		)
(Decrease) increase in deferred revenue	(832		)	711
Decrease in deferred rent	(165		)	(171		)
Increase (decrease) in other liabilities, net	2			(24		)
Net cash provided by operating activities	5,543			884
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	—			(220		)
Additions to capitalized software	(722		)	(1,015		)
Proceeds from the sale of property and equipment	—			185
Other investing activities	—			(31		)
Net cash used in investing activities	(722		)	(1,081		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock	—			(5,993		)
Proceeds pursuant to employee stock-based compensation plans	372			186
Excess tax benefits from stock-based awards	304			747
Surrender of restricted common stock for income tax purposes	(1,808		)	(2,026		)
Net cash used in financing activities	(1,132		)	(7,086		)
Increase (decrease) in cash and cash equivalents	3,689			(7,283		)
Cash and cash equivalents at beginning of period	88,509			89,955
Cash and cash equivalents at end of period	$	92,198		$	82,672

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of XO Group Inc. (“XO Group” or the “Company”) and its wholly-owned subsidiaries. The condensed consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2015.

In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial condition, results of operations and changes in cash flows of the Company for the interim periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of results to be expected for the entire calendar year.

Earnings per Share

For the three months ended March 31, 2016, the calculation of diluted earnings per share excludes a weighted average number stock options, restricted stock and ESPP shares of 363,994, 104,753, and 0, respectively, because to include them would be antidilutive. The calculation of diluted earnings per share for the three months ended March 31, 2015 excludes a weighted average number of stock options, restricted stock and ESPP shares of 150,000, 57,389 and 1,049, respectively, because to include them would be antidilutive.

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board ("FASB") issued guidance requiring equity securities to be measured at fair value with changes in fair value recognized through net income and eliminating the cost method for equity securities without readily determinable fair values. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In February 2016, FASB issued guidance on operating leases requiring a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In March 2016, FASB issued guidance on employee share-based payment accounting requiring all tax effects related to share-based payments at settlement or expiration to be recorded through the income statement and be reported as operating activities on the statement of cash flows. Further, under the new guidance, entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards; whereas forfeitures can be estimated, as required today, or recognized when they occur. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In March 2016, FASB issued guidance on equity method accounting eliminating the requirement to restate historical financial statements, as if the equity method had been used during all previous periods, when an existing cost method investment qualifies for use of the equity method. Under the new guidance, at the point an investment qualifies for the equity method, any unrealized gain or loss in accumulated other comprehensive loss may be recognized through earnings. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation - (continued)

In March 2016, FASB issued guidance on revenue from contracts with customers that 1) clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction and 2) provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods and services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods and services, and expands on related disclosures. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

2. Fair Value Measurements

Cash and cash equivalents and investments consist of the following:



	March 31, 2016		December 31, 2015
	(In Thousands)
Cash and cash equivalents
Cash	$	37,432	$	33,764
Money market funds	54,766		54,745
Total cash and cash equivalents	92,198		88,509
Long-term investments
Long-term restricted cash	2,598		2,598
Total cash and cash equivalents and investments	$	94,796	$	91,107

The inputs to the valuation techniques used to measure fair value are classified into the following categories:

Level 1 — Quoted prices in active markets for identical assets or liabilities

Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

As of March 31, 2016, the Company’s cash and cash equivalents of $92.2 million, and long-term restricted cash on the condensed consolidated balance sheets of $2.6 million, were measured at fair value using Level 1 inputs. During the three months ended March 31, 2016, there were no transfers in or out of the Company’s Level 1 assets.

Long-term restricted cash consists of $2.6 million held as restricted in relation to the Company’s New York office lease.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Stockholders’ Equity and Stock Based Compensation

The Company maintains several stock-based compensation plans, which are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

During the three month periods ended March 31, 2016 and March 31, 2015, common stock outstanding changed as a result of the following activity:



	Three Months Ended March 31,
	2016		2015
	(In Thousands)
Balance as of December 31	26,236		26,631

Issuance of shares of restricted common stock, net of cancellations	361		290
Issuance of shares of common stock pursuant to the employee stock purchase plan	29		20
Shares of common stock repurchased and retired	—		(343	)
Shares of restricted common stock surrendered for income tax purposes	(115	)	(130	)

Balance as of March 31	26,511		26,468

Shares of restricted common stock vested	291		216

The Company included total stock-based compensation expense related to all its stock awards in various operating expense categories for the three month periods ended March 31, 2016 and March 31, 2015, as follows:



	Three Months Ended March 31,
	2016		2015
	(In Thousands)
Product and content development	$	405	$	584
Sales and marketing	411		370
General and administrative	840		526
Total stock-based compensation	$	1,656	$	1,480

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Supplemental Balance Sheet and Cash Flow Information

The components of certain balance sheet accounts and supplemental cash flow information are as follows:



	March 31, 2016			December 31, 2015
	(In Thousands)
Prepaid expenses and other current assets
Taxes	$	2,227		$	1,971
Software licenses and maintenance	1,210			1,521
Compensation and employee benefits	400			324
Other	1,816			1,525
Total prepaid expenses and other current assets	$	5,653		$	5,341

Accounts payable and accrued expenses
Compensation and employee benefits	$	3,232		$	5,826
Accounts payable	2,595			3,018
Taxes	214			140
Other accrued expenses	3,309			3,179
Total accounts payable and accrued expenses	$	9,350		$	12,163

	Three Months Ended March 31,
	2016			2015
	(In Thousands)
Cash paid for income taxes, net of refunds	$	(2	)	$	1,008

Amortization of capitalized software was $0.9 million for the three months ended March 31, 2016, compared to $0.7 million for the three months ended March 31, 2015.

5. Commitments and Contingencies

The Company has certain obligations relating principally to operating leases and a letter of credit. As of March 31, 2016, the Company also has commitments related to purchase orders and other contracts.

As of March 31, 2016, the Company was engaged in certain legal actions arising in the ordinary course of business and believes that the ultimate outcome of these actions will not have a material effect on its results of operations, financial position or cash flows.

6. Income Taxes

The Company had an effective tax rate for the three months ended March 31, 2016 of 12.3%, compared to 40.0% for the three months ended March 31, 2015. The lower effective tax rate in 2016 was primarily a result of the reversal of a tax liability resulting from the resolution of an uncertain tax position associated with a former subsidiary.

The Company adopted accounting guidance requiring presentation of deferred income tax assets and liabilities as non-current in the condensed consolidated balance sheets, and offsetting deferred tax liabilities and assets. The Company early adopted this guidance on a prospective basis as of December 31, 2015. Prior periods were not retrospectively adjusted.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements relating to future events and the future performance of XO Group based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Actual results or events could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this report. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Executive Overview

XO Group offers consumer multiplatform media services to the wedding, pregnancy and parenting, and nesting markets. We reach our audience through several platforms, including online properties, mobile applications, magazines and books, and television and video. We create value for our consumers, advertisers, and partners by delivering relevant and personalized solutions at key decision making moments for some of life’s proudest and happiest events. We generate revenue through three distinct and diversified product categories: online advertising, transactions, and publishing.

Our mission is to help people navigate and truly enjoy life’s biggest moments, together. Our multiplatform brands guide couples through transformative life stages - from getting married, to moving in together, to having a baby - and include The Knot (#1 wedding marketplace and planning resource), The Bump (a leading pregnancy and parenting brand), and The Nest (the hip guide to all things home for new couples).

First Quarter 2016 Highlights


•	During the first quarter of 2016, total revenue increased 9.4% year over year, primarily due to an increase of 83.3% in our transactions business revenue and an increase of 12.2% in our total online revenue, year over year.


•	Revenue increased by 12.4% excluding our merchandise operations which we exited in the first quarter of 2015.


•	Our gross margin increased to 95.5% during the first quarter of 2016, from 91.9% during the first quarter of 2015.


•	Operating expenses for the first quarter of 2016 increased by 10.7% due to continued investment in our strategic initiatives.


•	Adjusted EBITDA increased 22.3% to $6.8 million, or 19.2% of revenue, during the first quarter of 2016.


•	GAAP earnings per share were $0.12 including a $0.04 per share benefit from a non-recurring tax benefit of $1.0 million.


•	Our cash balance increased $3.7 million to $92.2 million.

Performance Indicators

We evaluate our operating and financial performance using various performance indicators. Our management relies on the key performance indicators set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. We discuss revenue and gross margin under Results of Operations, and cash flow results under Liquidity and Capital Resources. Other measures of our performance, including adjusted EBITDA, adjusted net income and free cash flow are defined and discussed under Non-GAAP Financial Measures below.



	Three Months Ended March 31,
	2016			2015
	(Dollar Amounts in Thousands)
Total net revenue	$	35,669		$	32,602
Gross margin	95.5		%	91.9		%
Adjusted EBITDA	$	6,844		$	5,595
Adjusted net income	$	2,069		$	1,706
Cash and cash equivalents at March 31	$	92,198		$	82,672
Total employees at March 31	661			608

Non-GAAP Financial Measures

This Form 10-Q includes information about certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP” or “U.S. GAAP”), including adjusted EBITDA, adjusted net income, adjusted net income

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per diluted share and free cash flow. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

Management defines its non-GAAP financial measures as follows:


•	Adjusted EBITDA represents GAAP income from operations adjusted to exclude, if applicable: (1) depreciation and amortization, (2) stock-based compensation expense, (3) asset impairment charges, and (4) other items affecting comparability during the period.


•	Adjusted net income represents GAAP net income, adjusted for items that impact comparability, which may include: (1) asset impairment charges, (2) executive separation and other severance charges, (3) non-recurring foreign taxes, interest and penalties, and (4) costs related to exit activities.


•	Adjusted net income per diluted share represents adjusted net income (as defined above), divided by the diluted weighted-average number of shares outstanding for the period.


•	Free cash flow represents GAAP net cash provided by operations, less capital expenditures.

Management believes that these non-GAAP financial measures, when viewed with our results under U.S. GAAP and the accompanying reconciliations, provide useful information about our period-over-period growth and provide additional information that is useful for evaluating our operating performance. However, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow are not measures of financial performance under U.S. GAAP and, accordingly, should not be considered substitutes for or superior to net income, net income per diluted share and net cash provided by operating activities as indicators of operating performance.

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The table below provides reconciliations between the non-GAAP financial measures discussed above to the comparable U.S. GAAP measures:



	Three Months Ended March 31, 2016											Three Months Ended March 31, 2015
	GAAP Actual			Adjustments				Non GAAP				GAAP Actual			Adjustments				Non GAAP

Net revenue	$	35,669		$	—			$	35,669			$	32,602		$	—			$	32,602
Cost of revenue	1,610			—				1,610				2,655			—				2,655
Operating expenses
Product and content development	10,960			—				10,960				9,554			(11		)	(a)	9,543
Sales and marketing	11,714			—				11,714				10,622			(265		)	(a)	10,357
General and administrative	6,197			—				6,197				6,090			(158		)	(a)	5,932
Depreciation and amortization	1,594			—				1,594				1,245			—				1,245
Total operating expenses	30,465			—				30,465				27,511			(434		)		27,077

Income from operations	3,594			—				3,594				2,436			434				2,870

Interest and other expense, net	(1		)	—				(1		)		(23		)	—				(23		)
Loss in equity interests	(144		)	—				(144		)		(6		)	—				(6		)
Income tax expense	424			956			(b)	1,380				962			173			(b)	1,135
Net income	$	3,025		$	(956	)		$	2,069			$	1,445		$	261			$	1,706
Net income per share - diluted	$	0.12		$	(0.04	)		$	0.08			$	0.06		$	0.01			$	0.07
Weighted average number of shares outstanding - diluted	25,599							25,599				25,624							25,624

	Non GAAP Adjusted EBITDA Reconciliation
	Three Months Ended March 31, 2016											Three Months Ended March 31, 2015
	GAAP Actual			Adjustments				Non GAAP				GAAP Actual			Adjustments				Non GAAP
Income from operations	$	3,594		$	—			$	3,594			$	2,436		$	434		(a)	$	2,870
Depreciation and amortization	1,594			—				1,594			(c)	1,245			—				1,245			(c)
Stock based compensation	1,656			—				1,656			(d)	1,480			—				1,480			(d)
Adjusted EBITDA	$	6,844		$	—			$	6,844			$	5,161		$	434			$	5,595

	Free Cash Flow Reconciliation
	Three Months Ended March 31, 2016											Three Months Ended March 31, 2015
Net cash provided by operating activities								$	5,543										$	884
Less: capital expenditures								(722		)									(1,235		)
Free cash flow								$	4,821										$	(351	)


(a)	Costs impacting comparability included in operating expenses in the condensed consolidated statements of operations for the three months ended March 31, 2015 included costs related to the closure of our merchandise operations in Redding, CA.


(b)	Adjusted income tax expense was calculated using an effective tax rate of 40.0% for the three months ended March 31, 2016 and 2015. The effective tax rate for the three months ended March 31, 2016 excludes discrete items, including

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a one-time tax benefit associated with the resolution of an uncertain tax position for a former subsidiary in the 2016 period.


(c)	To eliminate depreciation and amortization expense.


(d)	To eliminate stock-based compensation expense.

Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

The following table summarizes results of operations for the three months ended March 31, 2016 compared to the three months ended March 31, 2015:



	Three Months Ended March 31,
	2016					2015					Increase/(Decrease)
	Amount			% of Net Revenue		Amount			% of Net Revenue		Amount			%
	(In Thousands, Except for Per Share Data)
Net revenue	$	35,669		100.0	%	$	32,602		100.0	%	$	3,067		9.4	%
Cost of revenue	1,610			4.5		2,655			8.1		(1,045		)	(39.4	)
Gross profit	34,059			95.5		29,947			91.9		4,112			13.7
Operating expenses	30,465			85.4		27,511			84.4		2,954			10.7
Income from operations	3,594			10.1		2,436			7.5		1,158			47.5
Loss in equity interests	(144		)	(0.4	)	(6		)	—		(138		)	(2,300.0	)
Interest and other expense, net	(1		)	—		(23		)	(0.1	)	22			95.7
Income before income taxes	3,449			9.7		2,407			7.4		1,042			43.3
Income tax expense	424			1.2		962			3.0		(538		)	(55.9	)
Net income	$	3,025		8.5	%	$	1,445		4.4	%	$	1,580		109.3	%
Net income per share:
Basic	$	0.12				$	0.06				$	0.06		100.0	%
Diluted	$	0.12				$	0.06				$	0.06		100.0	%

Net Revenue

Net revenue increased 9.4% to $35.7 million for the three months ended March 31, 2016, compared to $32.6 million for the three months ended March 31, 2015. The following table sets forth revenue by category for the three months ended March 31, 2016 compared to the three months ended March 31, 2015, the percentage increase or decrease between those periods, and the percentage of total net revenue that each category represented for those periods:



	Three Months Ended March 31,
	Net Revenue				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(In Thousands)
National online advertising	$	8,658	$	7,999	8.2	%	24.2	%	24.6	%
Local online advertising	18,179		15,917		14.2		51.0		48.8
Total online advertising	26,837		23,916		12.2		75.2		73.4
Transactions	4,204		2,294		83.3		11.8		7.0
Merchandise	—		878		(100.0	)	—		2.7
Publishing and other	4,628		5,514		(16.1	)	13.0		16.9
Total net revenue	$	35,669	$	32,602	9.4	%	100.0	%	100.0	%

Online advertising — Revenue from total online advertising increased by 12.2%.

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Revenue from national online advertising increased by 8.2% primarily driven by 49.9% growth in advertising on TheBump.com.

Local online advertising revenue increased by 14.2%, primarily attributable to an increase in the average number of local vendors advertising on our network of websites as a result of sales to new vendors as well as an increase in our average revenue per vendor and additional subscription revenue from GigMasters.com Incorporated ("GigMasters"). On a trailing twelve month basis, TheKnot.com ended the first quarter of 2016 with 24,356 paying vendors (up 4.4% from prior year), spending an average of $2,696 per year (up 7.0% from prior year).

Transactions — Revenue from transactions increased 83.3% as the Company's products drove more traffic and better conversion of our transactional partners' offerings.

Merchandise — We exited our merchandise operations in Redding, CA during the first quarter of 2015.

Publishing and other — Revenue for publishing and other decreased 16.1% in comparison to prior year primarily driven by a decrease in advertising revenue related to The Knot national magazine and the absence of The Bump print magazine, a publication we discontinued in 2015. The last issue of The Bump magazine was distributed in December 2015.

Gross Profit/Gross Margin

The following table presents the components of gross profit and gross margin for the three months ended March 31, 2016 compared to the three months ended March 31, 2015:



	Three Months Ended March 31,
	2016				2015					Increase/(Decrease)
	Gross Profit		Gross Margin %		Gross Profit			Gross Margin %		Gross Profit			Gross Margin %
	(Dollar Amounts In Thousands)
Online advertising (national and local)	$	26,337	98.1	%	$	23,562		98.5	%	$	2,775		11.8	%
Transactions	4,204		100.0		2,294			100.0		1,910			83.3
Merchandise	—		—		(2		)	(0.2	)	2			100.0
Publishing and other	3,518		76.0		4,093			74.2		(575		)	(14.0	)
Total gross profit	$	34,059	95.5	%	$	29,947		91.9	%	$	4,112		13.7	%

Gross profit improved 13.7%, with gross margin improving to 95.5% for the three months ended March 31, 2016 compared to 91.9% for the three months ended March 31, 2015. The increase in the total gross margin percentage was primarily attributable to the increase in our higher margin online and transactions revenue in the first quarter of 2016 and continued focus on efficiency in our publishing and other operations.

Operating Expenses

Our operating expenses for the three months ended March 31, 2016 increased 10.7% year over year. The following table presents the components of operating expenses and the percentage of revenue that each component represented for the three months ended March 31, 2016 compared to the three months ended March 31, 2015:

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	Three Months Ended March 31,
	Operating Expenses				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(In Thousands)
Product and content development	$	10,960	$	9,554	14.7	%	30.7	%	29.3	%
Sales and marketing	11,714		10,622		10.3		32.8		32.6
General and administrative	6,197		6,090		1.8		17.4		18.7
Depreciation and amortization	1,594		1,245		28.0		4.5		3.8
Total operating expenses	$	30,465	$	27,511	10.7	%	85.4	%	84.4	%

Product and Content Development — The increase of 14.7% was primarily attributable to an increase in employee headcount, consultants and related expenses to support our company wide initiatives including new local systems, product improvements, and transactional marketplace initiatives.

Sales and Marketing — The increase of 10.3% was primarily attributable to an increase in employee headcount and paid acquisition marketing expense to grow our business and transactional marketplace initiatives.

General and Administrative — General and administrative expenses increased slightly due to higher compensation related expenses, partially offset by a reduction on consulting expenses and year-over-year savings from exiting our merchandise operations in the first quarter of 2015.

Depreciation and Amortization — The increase of 28.0% was primarily attributable to capitalized software projects being placed into service and amortization expense on intangible assets increased as a result of the acquisition of GigMasters in the fourth quarter of 2015.

Income Tax Expense

We had an income tax expense of $0.4 million for the three months ended March 31, 2016, compared to an income tax expense of $1.0 million for the three months ended March 31, 2015. The effective tax rate for the three months ended March 31, 2016 was 12.3%, compared to 40.0% for the three months ended March 31, 2015. The lower effective tax rate in 2016 was primarily a result of the reversal of a tax liability resulting from the resolution of an uncertain tax position associated with a former subsidiary.

Liquidity and Capital Resources

Cash Flow

Cash and cash equivalents consist of cash and highly liquid investments with maturities of 90 days or less at the date of acquisition. At March 31, 2016, we had $92.2 million in cash and cash equivalents, compared to $88.5 million at December 31, 2015.

The following table sets forth our cash flows from operating activities, investing activities and financing activities for the periods indicated:



	Three Months Ended March 31,
	2016			2015
	(In Thousands)
Net cash provided by operating activities	$	5,543		$	884
Net cash used in investing activities	(722		)	(1,081		)
Net cash used in financing activities	(1,132		)	(7,086		)
Increase (decrease) in cash and cash equivalents	$	3,689		$	(7,283	)

Operating Activities

Net cash provided by operating activities was $5.5 million for the three months ended March 31, 2016. This was driven by our net income of $3.0 million and adjustments of $4.2 million for non-cash items including depreciation, amortization and stock-based compensation, partially offset by a net decrease in cash from changes in operating assets and liabilities of $1.7 million. The net cash outflow from changes in operating assets and liabilities was mainly driven by a decrease in accounts payable and accrued expenses of $2.5 million, partially offset by a decrease in trade accounts receivable net of deferred revenue of $1.3 million.

Net cash provided by operating activities was $0.9 million for the three months ended March 31, 2015. This was driven by our net income of $1.4 million, and adjustments of $2.8 million for non-cash items including depreciation, amortization and stock-based compensation, partially offset by a net decrease in cash from changes in operating assets and liabilities of $3.3 million. The net decrease in operating assets and liabilities was mainly driven by a decrease in accounts payable and accrued expenses of $3.8 million.

Investing Activities

Net cash used in investing activities was $0.7 million for the three months ended March 31, 2016, driven by expenditures of $0.7 million, primarily related to capitalized software.

Net cash used in investing activities was $1.1 million for the three months ended March 31, 2015, driven by capitalized expenditures of $1.2 million, which primarily related to capitalized software.

Financing Activities

Net cash used in financing activities was $1.1 million for the three months ended March 31, 2016, primarily driven by cash used to satisfy tax withholding obligations for employees related to the vesting of their restricted stock awards of $1.8 million, partially offset by excess tax benefits related to these stock awards of $0.3 million. Following the repurchases from 2014 and 2015, $9.6 million in shares of common stock may be purchased under such $20.0 million repurchase authorization. There were no repurchases in the first quarter of 2016.

Net cash used in financing activities was $7.1 million for the three months ended March 31, 2015, primarily driven by the repurchase of shares totaling $6.0 million and by cash used to satisfy tax withholding obligations for employees related to the vesting of their restricted stock awards of $2.0 million, partially offset by excess tax benefits related to these stock awards of $0.7 million.

Off-Balance Sheet Arrangements

As of March 31, 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Seasonality

We believe the impact of the frequency of weddings varying from quarter-to-quarter results in lower transactions revenue in the first and fourth quarters. Our publishing business experiences fluctuations resulting in quarter-to-quarter revenue declines in the first and third quarters due to the cyclical publishing schedule of our regional publications. As a result of the enhancement of our marketplace, we could potentially experience new and potentially different seasonal patterns in the future.

Critical Accounting Policies and Estimates

Our discussion of our results of operations and financial condition relies on our consolidated financial statements, which are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can result in outcomes that may be materially different from these estimates or forecasts.

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The accounting policies and related risks described in our Annual Report on Form 10-K for the year ended December 31, 2015 are those that depend most heavily on these judgments and estimates. During the three months ended March 31, 2016, there were no material changes to the critical accounting policies contained therein.

The total reserve balances that require management’s judgment and estimates were related to the allowance for doubtful accounts and amounted to $3.1 million and $2.7 million as of March 31, 2016 and December 31, 2015, respectively.

Recently Issued Accounting Pronouncements

Reference is made to Note 1 of Notes to Condensed Consolidated Financial Statements for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K, filed with the Securities Exchange Commission on March 4, 2016.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks.

We are exposed to market risk through interest rates related to the investment of our current cash and cash equivalents of $92.2 million as of March 31, 2016. These funds are generally invested in highly liquid debt instruments. As such instruments mature and the funds are reinvested, we are exposed to changes in market interest rates. This risk is not considered material, and we manage such risk by continuing to evaluate the best investment rates available for short-term, high quality investments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2016 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective at that reasonable assurance level.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in certain legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material effect on our results of operations, financial position or cash flows.

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Item 1A. Risk Factors

Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors found under the caption “Risk Factors” in our most recent Annual Report on Form 10-K, filed with the SEC on March 4, 2016. There have been no material changes to the risk factors described in our most recent Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased^(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(b)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs^(c)
January 1 to January 31, 2016	2,489	$	14.92	—	$	9,564,303
February 1 to February 29, 2016	12,456	$	14.35	—	$	9,564,303
March 1 to March 31, 2016	100,116	$	15.85	—	$	9,564,303
Total	115,061	$	15.67	—	$	9,564,303

_____________

(a)

The terms of some awards granted under certain of our stock incentive plans allow participants to surrender or deliver shares of XO Group’s common stock to us to pay for the exercise price of those awards or to satisfy tax withholding obligations related to the exercise or vesting of those awards. The shares listed in the table above represent the surrender or delivery of shares to us in connection with such exercise price payments or tax withholding obligations. For purposes of this table, the “price paid per share” is determined by reference to the closing sales price per share of XO Group’s common stock on the New York Stock Exchange on the date of such surrender or delivery (or on the last date preceding such surrender or delivery for which such reported price exists).

(b), (c)

On April 10, 2013, we announced that our Board of Directors had authorized the repurchase of up to $20.0 million of our common stock from time to time in the open market or in privately negotiated transactions. The repurchase program may be suspended or discontinued at any time, but it does not have an expiration date. As of March 31, 2016, we have repurchased a total of 634,479 shares of our common stock under this program for an aggregate of $10.4 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Incorporated by reference to the Exhibit Index immediately preceding the exhibits attached to this Quarterly Report on Form 10-Q.

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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.



Date: May 4, 2016	XO GROUP INC.
	By: /s/ Gillian Munson Gillian Munson Chief Financial Officer (principal financial officer and duly authorized officer)

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EXHIBIT INDEX



Number		Description
31.1		Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer and President Pursuant to 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* These certifications are not deemed filed with the Securities and Exchange Commission 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.

** In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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