Constant Contact Announces Third Quarter 2012 Financial Results

Constant Contact®, Inc. (Nasdaq: CTCT), which helps more than half a million small organizations connect with their customers through a suite of online engagement marketing tools, today announced its financial results for the third quarter ended September 30, 2012.

“We delivered on revenue and exceeded profitability expectations in the third quarter,” said Gail Goodman, chief executive officer of Constant Contact. “Growth in revenue per user and retention rates continued to show solid gains. New customer additions were below expectations for the quarter. Interest in our products remains high; we saw increased numbers of visitors and trialers. Our conversion of trialers into paying customers underperformed historical trends. We have begun to implement changes that we believe will improve conversion back to historical rates moving forward.”

“We have a strong brand and are the trusted marketing provider to more than half a million small businesses. Our opportunity is expansive and we continue to invest to drive the transformation of Constant Contact into a multi-product company. This evolution will take a bit longer than we had envisioned,” continued Goodman. “Looking ahead, we are focused on growing our email business while testing, iterating and scaling our newer offerings.”

Third Quarter 2012 Financial Metrics

• Revenue was $63.8 million, an increase of 17% compared to revenue of $54.3 million for the comparable period in 2011.
• Gross margin in the third quarter was 71%, compared to 71% for the comparable period in 2011.
• GAAP net income was $6.6 million, compared to net income of $5.4 million for the third quarter of 2011. GAAP net income per share was $0.21, based on diluted weighted average shares outstanding of 31.0 million, compared to net income of $0.18 per share for the comparable period in 2011, based on diluted weighted average shares outstanding of 30.4 million. GAAP net income and GAAP net income per share include a $6.1 million non-cash benefit from a change to the fair value of a contingent consideration liability associated with the acquisition of SinglePlatform in 2012.
• Adjusted EBITDA was $11.3 million compared to adjusted EBITDA of $12.0 million for the comparable period in 2011. Adjusted EBITDA margin was 17.6%, compared to 22.1% for the comparable period in 2011. Adjusted EBITDA and adjusted EBITDA margin exclude a $6.1 million non-cash benefit from a change to the fair value of a contingent consideration liability associated with the acquisition of SinglePlatform in 2012.
• Non-GAAP net income was $6.2 million as compared to $8.2 million for the comparable period in 2011. Non-GAAP net income per diluted share was $0.20, based on diluted weighted average shares outstanding of 31.0 million, as compared to $0.27, based on diluted weighted average shares outstanding of 30.4 million, for the comparable period in 2011. Non-GAAP net income and non-GAAP net income per share exclude a $6.1 million non-cash benefit from a change to the fair value of a contingent consideration liability associated with the acquisition of SinglePlatform in 2012.
• Cash flow from operations was $10.9 million, compared to $11.6 million for the third quarter of 2011.
• Capital expenditures were $4.4 million, compared to $4.1 million for the third quarter of 2011.
• Free cash flow was $6.5 million, compared to $7.5 million for the third quarter of 2011.
• The company had $88.2 million in cash, cash equivalents and short-term marketable securities at September 30, 2012, compared to $81.1 million at June 30, 2012.

Operating Metrics

• Added 35,000 gross new unique customers in the third quarter compared to 45,000 in the second quarter of 2012. (*)
• Ended the third quarter with 540,000 unique customers, an increase from 535,000 unique customers at the end of the second quarter of 2012 and 485,000 unique customers at the end of the third quarter of 2011. This includes the approximately 10,000 existing SinglePlatform customers at the time of the acquisition in June 2012. (*)
• Average monthly revenue per unique customer, ARPU, for the third quarter was $40.35, up from $39.98 in the second quarter of 2012, and up from $37.94 in the comparable period in 2011. (**)
• Monthly retention rate of unique paying customers remained in its historical range of 97.8%, plus or minus 0.5%, for each month during the third quarter. (*) Figures are rounded to nearest 5,000. (**) The ARPU calculation includes SinglePlatform revenue for the third quarter of 2012 and excludes the approximately 10,000 existing SinglePlatform customers at the time of the acquisition in June 2012.

Other Recent Highlights

• Announced the introduction of EventSpot ^TM, the latest version of Constant Contact’s rebranded and renamed event management product, in August. EventSpot's focus remains on helping small businesses, nonprofits and associations hold successful events. The new name reflects the value of EventSpot as a comprehensive online tool, enabling effective event promotion, event registration, payments, web-based meeting tools and post-event tracking and analytics.
• In September, Constant Contact jointly hosted a second social media marketing webinar with Facebook ^®. This webinar focused on the essential steps to building a fan base, engaging an audience and creating large-scale word of mouth on Facebook. The purpose of the webinar was to demonstrate the value of social media to the nonprofit community in terms of growing their organization, as well as building a community of advocates to reinvigorate existing members and find new volunteers and donors.
• In August, launched the Constant Contact Association Program designed to help Constant Contact’s more than 10,000 national association subscribers, local chapters and member organizations achieve marketing success. The program focuses on online marketing best practices education to help associates attract new members, foster communication with existing members, and support members' marketing efforts with Constant Contact’s email marketing, social media marketing, event marketing, local deals, digital storefront and online survey tools.

“For the third quarter, we delivered revenue in-line with expectations and a better-than-expected adjusted EBITDA margin,” said Harpreet Grewal, chief financial officer of Constant Contact. “Third quarter customer additions proved disappointing. As we look to subsequent periods, we are adjusting our guidance to reflect third quarter trends. For 2012, we expect to exit the fourth quarter with revenue growth of approximately 14% on a year-over-year basis, while also delivering annual adjusted EBITDA at the high end of our previous guidance. For 2013, we expect to deliver approximately 13% - 15% annual revenue growth and approximately 100 basis points of annual adjusted EBITDA margin improvement. We are committed to improving our execution and setting in place the basis for acceleration of both customer and revenue growth.”

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