mchx-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2016

or

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 000-50658

 

Marchex, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

35-2194038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

520 Pike Street, Suite 2000

Seattle, Washington 98101

(Address of principal executive offices)

Registrant’s telephone number, including area code: (206) 331-3300

 

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate website, 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      No  

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

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Class

 

Outstanding at

November 3, 2016

Class A common stock, par value $.01 per share

 

5,056,136

Class B common stock, par value $.01 per share

 

38,102,444

 

 

 

 


 

Marchex, Inc.

Form 10-Q

Table of Contents

 

 

 

Page

Part I—Financial Information

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

Item 4.

Controls and Procedures

34

 

Part II—Other Information

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

Item 4.

Mine Safety Disclosures

54

 

 

 

Item 6.

Exhibits

55

 

 

SIGNATURE

56

 

2


 

Part I—Financial Information

Item 1. Condensed Consolidated Financial Statements

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

December 31,

2015

 

 

September 30,

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,155

 

 

$

105,275

 

Accounts receivable, net

 

 

24,621

 

 

 

21,579

 

Prepaid expenses and other current assets

 

 

1,784

 

 

 

1,995

 

Refundable taxes

 

 

127

 

 

 

117

 

Total current assets

 

 

135,687

 

 

 

128,966

 

Property and equipment, net

 

 

5,778

 

 

 

3,913

 

Intangible and other assets, net

 

 

222

 

 

 

220

 

Goodwill

 

 

63,305

 

 

 

 

Total assets

 

$

204,992

 

 

$

133,099

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,460

 

 

$

7,960

 

Accrued expenses and other current liabilities

 

 

6,712

 

 

 

8,300

 

Deferred revenue

 

 

692

 

 

 

362

 

Total current liabilities

 

 

16,864

 

 

 

16,622

 

Other non-current liabilities

 

 

662

 

 

 

266

 

Total liabilities

 

 

17,526

 

 

 

16,888

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Class A common stock

 

 

55

 

 

 

55

 

Class B common stock

 

 

368

 

 

 

381

 

Treasury stock

 

 

(238

)

 

 

(2

)

Additional paid-in capital

 

 

350,799

 

 

 

357,617

 

Accumulated deficit

 

 

(163,518

)

 

 

(241,840

)

Total stockholders’ equity

 

 

187,466

 

 

 

116,211

 

Total liabilities and stockholders’ equity

 

$

204,992

 

 

$

133,099

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

3


 

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

Revenue

 

$

108,113

 

 

$

101,146

 

 

$

36,852

 

 

$

30,749

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs

 

 

59,166

 

 

 

60,964

 

 

 

20,003

 

 

 

18,505

 

Sales and marketing

 

 

11,969

 

 

 

16,733

 

 

 

4,266

 

 

 

5,562

 

Product development

 

 

23,608

 

 

 

21,859

 

 

 

7,769

 

 

 

6,832

 

General and administrative

 

 

14,925

 

 

 

15,815

 

 

 

4,721

 

 

 

5,320

 

Acquisition and disposition related costs

 

 

199

 

 

 

662

 

 

 

81

 

 

 

354

 

Total operating expenses

 

 

109,867

 

 

 

116,033

 

 

 

36,840

 

 

 

36,573

 

Impairment of goodwill

 

 

 

 

 

(63,305

)

 

 

 

 

 

 

Income (loss) from operations

 

 

(1,754

)

 

 

(78,192

)

 

 

12

 

 

 

(5,824

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and line of credit expense

 

 

(48

)

 

 

(41

)

 

 

(11

)

 

 

(3

)

Other, net

 

 

(4

)

 

 

(49

)

 

 

(1

)

 

 

(12

)

Total other expense

 

 

(52

)

 

 

(90

)

 

 

(12

)

 

 

(15

)

Income (loss) from continuing operations before provision for income taxes

 

 

(1,806

)

 

 

(78,282

)

 

 

0

 

 

 

(5,839

)

Income tax expense

 

 

11

 

 

 

40

 

 

 

191

 

 

 

15

 

Net loss from continuing operations

 

 

(1,817

)

 

 

(78,322

)

 

 

(191

)

 

 

(5,854

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

5,084

 

 

 

 

 

 

37

 

 

 

 

Gain on sale of discontinued operations, net of tax

 

 

22,195

 

 

 

 

 

 

163

 

 

 

 

Discontinued operations, net of tax

 

 

27,279

 

 

 

 

 

 

200

 

 

 

 

Net income (loss)

 

 

25,462

 

 

 

(78,322

)

 

 

9

 

 

 

(5,854

)

Dividends paid to participating securities

 

 

(37

)

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

25,425

 

 

$

(78,322

)

 

$

9

 

 

$

(5,854

)

Basic and diluted net income (loss) per Class A and Class B share applicable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.04

)

 

$

(1.88

)

 

$

(0.00

)

 

$

(0.14

)

Discontinued operations, net of tax

 

 

0.66

 

 

 

 

 

 

0.00

 

 

 

 

Basic and diluted net income (loss) per Class A and Class B share applicable to common stockholders

 

$

0.62

 

 

$

(1.88

)

 

$

0.00

 

 

$

(0.14

)

Dividends paid per share

 

$

0.04

 

 

$

 

 

$

 

 

$

 

Shares used to calculate basic net income (loss) per share applicable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

5,233

 

 

 

5,233

 

 

 

5,233

 

 

 

5,233

 

Class B

 

 

35,980

 

 

 

36,372

 

 

 

36,120

 

 

 

36,639

 

Shares used to calculate diluted net income (loss) per share applicable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

5,233

 

 

 

5,233

 

 

 

5,233

 

 

 

5,233

 

Class B

 

 

41,213

 

 

 

41,605

 

 

 

41,353

 

 

 

41,872

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

4


 

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

25,462

 

 

$

(78,322

)

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

 

 

 

 

 

 

 

 

Amortization and depreciation

 

 

2,735

 

 

 

2,457

 

Impairment of goodwill

 

 

 

 

 

63,305

 

Allowance for doubtful accounts and advertiser credits

 

 

678

 

 

 

1,429

 

Loss on disposal of fixed assets

 

 

 

 

 

3

 

Gain on sale of discontinued operations

 

 

(22,195

)

 

 

 

Stock-based compensation

 

 

7,809

 

 

 

7,246

 

Change in certain assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(599

)

 

 

1,612

 

Refundable taxes

 

 

(4

)

 

 

10

 

Prepaid expenses, other current assets and other assets

 

 

484

 

 

 

(223

)

Accounts payable

 

 

(1,472

)

 

 

(1,477

)

Accrued expenses and other current liabilities

 

 

230

 

 

 

1,812

 

Deferred revenue

 

 

(789

)

 

 

(329

)

Other non-current liabilities

 

 

(339

)

 

 

(396

)

Net cash provided by (used in) operating activities

 

 

12,000

 

 

 

(2,873

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of discontinued operations, net of costs

 

 

25,249

 

 

 

 

Cash paid for sale of Archeo assets

 

 

 

 

 

(224

)

Purchases of property and equipment

 

 

(3,623

)

 

 

(594

)

Purchases of intangible assets and changes in other non-current assets

 

 

(46

)

 

 

(11

)

Net cash provided by (used in) investing activities

 

 

21,580

 

 

 

(829

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Tax withholding related to restricted stock awards

 

 

(74

)

 

 

(154

)

Common stock dividend payments

 

 

(1,685

)

 

 

 

Repurchase of Class B common stock

 

 

(3,201

)

 

 

(365

)

Proceeds from exercises of stock options, issuance and vesting of restricted stock and employee stock purchase plan, net

 

 

284

 

 

 

341

 

Net cash used in financing activities

 

 

(4,676

)

 

 

(178

)

Net increase (decrease) in cash and cash equivalents

 

 

28,904

 

 

 

(3,880

)

Cash and cash equivalents at beginning of period

 

 

80,032

 

 

 

109,155

 

Cash and cash equivalents at end of period

 

$

108,936

 

 

$

105,275

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


 

MARCHEX, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

(1) Description of Business and Basis of Presentation

Marchex, Inc. (the “Company”) was incorporated in the state of Delaware on January 17, 2003. The Company is a mobile advertising analytics company that helps connect online behavior to real-world, offline actions. The Company provides products and services for businesses of all sizes that depend on consumer phone calls to drive sales. The Company’s technology can facilitate call quality, analyze calls in real time and measure the outcomes of calls while its technology platform delivers performance-based, pay-for-call advertising across numerous mobile and online publishers to connect consumers with businesses over the phone.

The accompanying unaudited condensed consolidated financial statements of Marchex, Inc. and its wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or for any other period. The balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

In April 2015, the Company sold certain assets related to Archeo’s domain operations, including the bulk of its domain name portfolio. The operating results related to this April 2015 disposition are shown as discontinued operations in the condensed consolidated statements of operations in 2015. In December 2015, the Company sold the remaining Archeo operations which did not meet the criteria for discontinued operations, and as a result the operating results are reflected in continuing operations in 2015. See Note 12. Discontinued Operations, Dispositions, and Other of the Notes to Condensed Consolidated Financial Statements for further discussion. Unless otherwise indicated, information presented in the Notes to Condensed Consolidated Financial Statements relates only to the Company’s continuing operations.

 

 

(2) Significant Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These judgments are difficult as matters that are inherently uncertain directly impact their valuation and accounting. Actual results may vary from management’s estimates and assumptions.

Recent Accounting Pronouncement(s) Not Yet Effective

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled when products or services are transferred to customers. In July 2015, the FASB voted to approve a one-year delay of the effective date. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. ASU 2014-09 may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. In 2016, the FASB issued additional guidance to clarify the implementation guidance. The Company is currently in the process of evaluating the impact of adoption of ASU 2014-09 on its consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17), an ASU amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting periods

6


 

beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or retrospectively. The Company does not expect adoption of ASU 2015-17 to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (Topic 842), an ASU requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The ASU must be adopted retrospectively. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB amended the existing accounting standards for stock-based compensation, with Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendments impact several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. If early adoption is elected, all amendments must be adopted in the same period. The manner of application varies by the various provisions of the guidance, with certain provisions applied on a retrospective or modified retrospective approach, while others are applied prospectively. The Company is currently evaluating the impact of these amendments and the transition alternatives on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13), an ASU amending the impairment model for most financial assets and certain other instruments. The ASU is effective for reporting periods beginning after December 15, 2019, with early adoption permitted after December 15, 2018. The ASU must be adopted using a modified-retrospective approach. The Company does not expect adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

 

 

(3) Stock-based Compensation Plans

The Company grants stock-based awards, including stock options, restricted stock awards, and restricted stock units. The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock-based award, using the straight-line method under FASB ASC 718. Stock-based compensation expense was included in the following operating expense categories as follows (in thousands):

 

 

 

Nine months ended

September 30,

 

 

Three months ended

September 30,

 

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

Service costs

 

$

1,046

 

 

$

565

 

 

$

273

 

 

$

160

 

Sales and marketing

 

 

893

 

 

 

1,321

 

 

 

339

 

 

 

353

 

Product development

 

 

1,843

 

 

 

1,367

 

 

 

620

 

 

 

206

 

General and administrative

 

 

4,027

 

 

 

3,993

 

 

 

1,119

 

 

 

1,060

 

Total stock-based compensation

 

$

7,809

 

 

$

7,246

 

 

$

2,351

 

 

$

1,779

 

 

The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. For the quarters ended September 30, 2015 and 2016, the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, vesting schedules and forfeitures. Expected volatility is based on historical volatility levels of the Company’s Class B common stock and the expected volatility of companies in similar industries that have similar vesting and contractual terms. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company used an expected annual dividend yield in consideration of the Company’s common stock dividend payments during the first half of 2015. The Company discontinued paying dividends on its common stock after the second quarter of 2015.

7


 

The following weighted average assumptions were used in determining the fair value of time-vested stock option grants for the periods presented:

 

 

 

Nine months ended

September 30,

 

 

Three months ended

September 30,

 

 

 

2015

 

 

2016

 

 

2015

 

 

2016

 

Expected life (in years)

 

4.0-6.25

 

 

 

4.0-6.25

 

 

4.0-6.25

 

 

 

4.0

 

Risk-free interest rate

 

1.13%-1.56%

 

 

 

0.86%-1.15%

 

 

1.15%-1.56%

 

 

 

1.01%

 

Expected volatility

 

59%-65%

 

 

 

57%-58%

 

 

59%-60%

 

 

 

57%

 

Expected dividend yield

 

0%-0.36%

 

 

 

0%

 

 

 

0%

 

 

 

0%

 

 

Stock option activity during the nine months ended September 30, 2016 is summarized as follows:

 

 

 

Shares

 

 

Weighted average

exercise price

 

 

Weighted average remaining

contractual term

(in years)

 

Balance at December 31, 2015

 

 

8,937,281

 

 

$

6.97

 

 

 

6.33

 

Options granted

 

 

1,669,000

 

 

 

4.20

 

 

 

 

 

Options forfeited

 

 

(734,562

)

 

 

5.51

 

 

 

 

 

Options expired

 

 

(620,500

)

 

 

12.58

 

 

 

 

 

Options exercised

 

 

(60,303

)

 

 

4.01

 

 

 

 

 

Balance at September 30, 2016

 

 

9,190,916

 

 

$

6.22

 

 

 

5.91

 

 

Restricted stock awards and restricted stock units are generally measured at fair value on the date of grant based on the number of awards granted and the quoted price of the Company’s common stock. Restricted stock units entitle the holder to receive one share of the Company’s Class B common stock upon satisfaction of certain service conditions.

Restricted stock awards and restricted stock unit activity during the nine months ended September 30, 2016 is summarized as follows:

 

 

 

Shares/

Units

 

 

Weighted average

grant date

fair value

 

Unvested balance at December 31, 2015

 

 

2,222,080

 

 

$

4.86

 

Granted

 

 

2,196,406

 

 

 

4.24

 

Vested

 

 

(813,592

)

 

 

5.16

 

Forfeited

 

 

(649,771

)

 

 

5.08

 

Unvested balance at September 30, 2016

 

 

2,955,123

 

 

$

4.26

 

 

In the nine months ended September 30, 2015 and 2016, the Company repurchased approximately 15,000 and 45,000 shares, respectively, from certain executives for minimum withholding taxes on approximately 55,000 and 146,000 restricted stock award vests, respectively. The number of shares repurchased was based on the value on the vesting date of the restricted stock awards equivalent to the value of the executives’ minimum withholding taxes of $74,000 and $154,000, respectively, which was remitted in cash to the appropriate taxing authorities. The payments are reflected as a financing activity within the consolidated statement of cash flows when paid. The payments had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued on the vesting date and were recorded as a reduction of additional paid-in capital.

In May 2016, approximately 27,000 stock options and 33,000 restricted stock awards were fully accelerated and the period to exercise any outstanding vested stock options was modified to extend through the 10-year anniversary of the respective grant dates in connection with an executive’s transition to a consulting arrangement.  In October 2016, vesting of 288,877 stock options and 190,187 restricted stock awards were accelerated in connection with an executive’s separation agreement for which the estimated related stock-based compensation expense of approximately $1.3 million will be recognized in the fourth quarter of 2016.  

 

 

(4) Net Income (Loss) Per Share

The Company computes net income (loss) per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per

8


 

share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net income (loss) per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net income (loss) per share of Class A common stock does not assume the conversion of those shares.

In accordance with the two class method, the undistributed earnings (losses) for each year are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the earnings for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on our common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed earnings (losses) on a proportionate basis. Additionally, the Company has paid dividends equally to both classes of common stock and the unvested restricted shares for all cash dividends paid since November 2006.

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating earnings per share. Under the two class method, dividends paid on unvested restricted stock are allocated to these participating securities and therefore impact the calculation of amounts allocated to common stock.

The following table calculates net loss from continuing operations to net income (loss) applicable to common stockholders used to compute basic net income (loss) per share for the periods ended (in thousands, except per share amounts):

 

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2016

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(235

)

 

$

(1,582

)

 

$

(9,850

)

 

$

(68,472

)

Dividends paid to participating securities

 

 

 

 

 

(37

)

 

 

 

 

 

 

Net loss from continuing operations applicable to common stockholders

 

$

(235

)

 

$

(1,619

)

 

$

(9,850

)

 

$

(68,472

)

Discontinued operations, net of tax

 

 

3,464

 

 

 

23,815

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

3,229

 

 

$

22,196

 

 

$

(9,850

)

 

$

(68,472

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding used to calculate basic net income (loss) per share

 

 

5,233

 

 

 

35,980

 

 

 

5,233

 

 

 

36,372

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations applicable to common stockholders

 

$

(0.04

)

 

$

(0.04

)

 

$

(1.88

)

 

$

(1.88

)

Discontinued operations, net of tax

 

 

0.66

 

 

 

0.66

 

 

 

 

 

 

 

Basic net income (loss) per share applicable to common stockholders

 

$

0.62

 

 

$

0.62

 

 

$

(1.88

)

 

$

(1.88

)

9


 

 

 

 

Three months ended September 30,

 

 

 

2015

 

 

2016

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Numerator:

Net loss from continuing operations applicable to common stockholders

 

$

(24

)

 

$

(167

)

 

$

(732

)

 

$

(5,122

)

Discontinued operations, net of tax

 

 

25

 

 

 

175

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

1

 

 

$

8

 

 

$

(732

)

 

$

(5,122

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding used to calculate basic net income (loss) per share

 

 

5,233

 

 

 

36,120

 

 

 

5,233

 

 

 

36,639

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations applicable to common stockholders

 

$

(0.00

)

 

$

(0.00

)

 

$

(0.14

)

 

$

(0.14

)

Discontinued operations, net of tax

 

 

0.00

 

 

 

0.00

 

 

 

 

 

 

 

Basic net income (loss) per share applicable to common stockholders

 

$

0.00

 

 

$

0.00

 

 

$

(0.14

)

 

$

(0.14

)

 

The following table calculates net income (loss) from continuing operations to net income (loss) applicable to common stockholders used to compute diluted net income (loss) per share for the periods ended (in thousands, except per share amounts):

 

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2016

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(235

)

 

$

(1,582

)

 

$

(9,850

)

 

$

(68,472

)

Dividends paid to participating securities

 

 

 

 

 

(37

)

 

 

 

 

 

 

Reallocation of net loss for Class A shares as a result of conversion of Class A to Class B shares

 

 

 

 

 

(235

)

 

 

 

 

 

(9,850

)

Net loss from continuing operations applicable to common stockholders

 

$

(235

)

 

$

(1,854

)

 

$

(9,850

)

 

$

(78,322

)

Discontinued operations, net of tax

 

 

3,464

 

 

 

23,815

 

 

 

 

 

 

 

Reallocation of discontinued operations for Class A shares as a result of conversion of Class A to Class B shares

 

 

 

 

 

3,464

 

 

 

 

 

 

 

Diluted discontinued operations, net of tax

 

$

3,464

 

 

$

27,279

 

 

$

 

 

$

 

Net income (loss) applicable to common stockholders

 

$

3,229

 

 

$

25,425

 

 

$

(9,850

)

 

$

(78,322

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding used to calculate basic net income (loss) per share

 

 

5,233

 

 

 

35,980

 

 

 

5,233

 

 

 

36,372

 

Conversion of Class A to Class B common shares outstanding

 

 

 

 

 

5,233

 

 

 

 

 

 

5,233

 

Weighted average number of shares outstanding used to calculate diluted net income (loss) per share

 

 

5,233

 

 

 

41,213

 

 

 

5,233

 

 

 

41,605

 

Diluted net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations applicable to common stockholders

 

$

(0.04

)

 

$

(0.04

)

 

$

(1.88

)

 

$

(1.88

)

Discontinued operations, net of tax

 

 

0.66

 

 

 

0.66

 

 

 

 

 

 

 

Diluted net income (loss) per share applicable to common stockholders

 

$

0.62

 

 

$

0.62

 

 

$

(1.88

)

 

$

(1.88

)

10


 

 

 

 

Three months ended September 30,

 

 

 

2015

 

 

2016

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(24

)

 

$

(167

)

 

$

(732

)

 

$

(5,122

)

Dividends paid to participating securities

 

 

 

 

 

 

 

 

 

 

 

 

Reallocation of net loss for Class A shares as a result of conversion of Class A to Class B shares

 

 

 

 

 

(24

)

 

 

 

 

 

(732

)

Net loss from continuing operations applicable to common stockholders

 

$

(24

)

 

$

(191

)

 

$

(732

)

 

$

(5,854

)

Discontinued operations, net of tax

 

 

25

 

 

 

175

 

 

 

 

 

 

 

Reallocation of discontinued operations for Class A shares as a result of conversion of Class A to Class B shares

 

 

 

 

 

25

 

 

 

 

 

 

 

Discontinued operations, net of tax

 

$

25

 

 

$

200

 

 

$

 

 

$

 

Net income (loss) applicable to common stockholders