The Active Network (NYSE:ACTV)
Annual Shareholder Meeting
June 21, 2013 12:00 pm ET
Bruns H. Grayson - Presiding Director, Chairman of Corporate Governance & Nominating Committee and Member of Audit Committee
Jon Belmonte - Interim Chief Executive Officer
Kourosh Vossoughi - Chief Legal Officer, Senior Vice President of Business Development, General Counsel and Secretary
Scott Mendel - Chief Financial Officer and Principal Accounting Officer
The Active Network annual meeting will now begin.
Bruns H. Grayson
Good morning. Welcome, everyone. Good afternoon on the East Coast. Thanks for joining our annual meeting of stockholders. I would like to call the meeting to order. I'm Bruns Grayson, Presiding Director of the company, also a member of the Nominating Corporate Governance Committee and a member of the Audit Committee, and I'll be serving as chair of this meeting.
Before we get started, I'd like to introduce the other board members who are attending via this webcast: Tom Clancy, Chair of the Comp Committee and a member of the Audit Committee, and Nominating and Corporate Governance Committee; Steve Green, Chair of the Audit Committee and a member of the Nominating and Corporate Governance Committee, and the Comp Committee; Joey Levin, a member of the Comp Committee; Dave Alberga, founder, longtime CEO and a member of the board. I would also like to introduce some of the members of the management team who are in attendance: Jon Belmonte, the Interim CEO; Darko Dejanovic, the President; Scott Mendel, Chief Financial Officer; Koury Vossoughi, Chief Legal Officer and General Counsel, who will be serving as Secretary of this meeting; Michael Howard, representing Ernst & Young, our independent public auditor, is with us today as well. And now, I'd like to turn the meeting over to Jon Belmonte, Interim CEO for additional details regarding the meeting.
Thanks, Bruns. I wanted to take a minute to state why we are again holding a virtual annual meeting. We believe that holding a virtual meeting expands access to our Annual Stockholder Meeting, as our stockholders located anywhere in the world can attend the meeting and any non-stockholder can listen to this webcast. We also believe that a virtual meeting can help to increase the level of voting participation because our stockholders can vote while the meeting is in progress. At the same time, holding a virtual meeting should reduce the cost to us of conducting our annual meeting. So this should be a win-win for the company and its stockholders.
At this time, we will begin conducting the formal portion of the meeting and provide an overview of the company's proposals, submitted to stockholders. We will then present an overview of the operations of the company, following which, voting will close, and we will announce the preliminary results of the voting.
Finally, members of the management team will address stockholder questions. Stockholders may submit their questions online, where indicated on the webcast portal at any time during the meeting. Stockholders must have their 12-digit control number to submit questions. Koury Vossoughi has been appointed as the inspector of elections for the meeting.
Most stockholders have already voted by proxy, and your proxy votes have been tallied. If you are a stockholder and you want to vote your shares now or change your vote, then you may vote online, where indicated on the webcast portal until the conclusion of the company's presentation. The polls, to vote online, are open now. Stockholders must have their 12-digit control number to vote. Voting online will have the effect of revoking any earlier proxy you gave.
Now I'm going to ask Koury to report on the notice of the meeting and the proxies received.
Thank you, Jon. We have an affidavit from Broadridge certifying that stockholders of record, as of May 15, 2013, were mailed proxy materials on or about May 23, 2013. The affidavit will be filed with the minutes of this meeting. As a result, the meeting is being held pursuant to proper notice. Proxies representing more than 80%, out of approximately 61.7 million shares of the company's outstanding stock eligible to vote, had been received. And accordingly, a quorum is present, and the meeting is duly constituted and should proceed.
We have adopted an agenda that will govern the order of business at this meeting, and rules of procedure of the meeting. Copies of the agenda and the rules are posted on the webcast portal. Rules of procedure also govern any questions submitted during the meeting. We now come to the part of the meeting where stockholders consider the matters set forth in the proxy statement. I will turn the meeting over to Scott Mendel, the company's Chief Financial Officer.
The first item of business to come before the meeting is the election of directors. The company has a classified Board of Directors, with directors serving staggered 3-year terms. The following 2 Class II Directors have been properly nominated by the Board to serve until the 2016 Annual Meeting of Stockholders: Jon Belmonte and Stephen Green. The Board recommends a vote for each of the directors on the ballot.
The second item of business to come before the meeting is ratification of the company's independent auditor, Ernst & Young LLP for fiscal year 2013. The proposal is discussed in the company's proxy statement. The Board recommends approval of the proposal.
The third item of business before the meeting is an advisory vote on the following resolution regarding executive compensation: the say-on-pay resolution. The Secretary will read the resolution.
Resolve that the stockholders approve, in a nonbinding vote, the compensation of the company's named executive officers, as disclosed in the company's proxy statement.
The Board recommends approval of the proposal. Voting on these proposals will remain open for approximately 15 minutes until the end of the company's presentation.
Before we begin our presentation, we would like to remind everyone that our statements today that are not purely historical are forward-looking statements. Our actual results may differ materially from those projected in any forward-looking statements due to various risks and uncertainties, including those found in the Risk Factors section of our periodic reports filed with the SEC. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update these statements to reflect events or circumstances after the date hereof.
I would also like to point out that during the presentation, we do mention certain non-GAAP financial measures, which will be explained during the presentation.
Now I will turn the meeting back over to Jon for an update on the company's operations.
Thanks, Koury. I'd like to take a few minutes to give you an update on the company's operations. Thanks for taking the time to meet with us today, and thanks for your interest in Active. We will be making some forward-looking statements today, and those comments will be governed under standard Safe Harbor guidelines.
These activities -- sorry. We are the technology that powers activities, but we are more than technology. These activities often represent how we define ourselves as family and community members and professionals, how we find fulfillment, and how we connect and socialize with other people. These are the activities we do everyday, and yet they are still largely untouched by technology, with many organizers still using paper-based systems to manage their businesses and participants.
As we share the story of Active, we believe it's important to set the context for the space our technology touches. The activities we power are everywhere. Local school districts use us to manage extracurricular activities. Park and recreation departments, community churches, golf courses, camps and YMCAs, use our cloud solutions to run their organizations. Corporations use us to manage their conferences and conventions, and triathlons, marathons and 5Ks use us to manage their events. Campgrounds use us for reservations, and states use us to sell hunting and fishing licenses. Sports organizations use us to manage their leagues and tournaments and clubs, and town halls use us to manage their citizen interactions.
We have quietly become ubiquitous in many cities and towns, and our goal is to continue to drive our reach throughout North America and around the world. We are sitting on top of an enormous opportunity. In fact, we believe we've created an industry that is ripe for transformation by technology. Travel sales automation, marketing automation, these businesses and so many other markets have gone through massive transformation, driven by technology. For the past 10-plus years, we've been hard at work aggregating a previously fragmented market. We believe the activities market represents a very large, virtually untapped opportunity. We estimate that 73% of all households in the U.S. pay to participate in some kind of activity each year, spending $110 billion annually in registration fees alone.
We serve 4 major customer groups: outdoors, business events, communities and sports. Together, over 800,000 organizers in North America facilitate over 1.7 billion activity entries each year, generating $110 billion in entry fees. Our available technology market works out to be roughly 9% of that $110 billion, which is equal to $10 billion. That is for North America alone. The opportunity for the rest of the world is more than double that number.
The business we're in is Activity and Participant Management. We've created this category. We've developed the technology model that delivers value to activity organizers and provides opportunity for a scalable business for us.
Here's how it works. First, we create the best vertical technology applications. The global activities market is really dozens of smaller markets, each with its own unique needs and language. And so we have created vertically relevant and authentic technology for each of the markets in which we operate. For example, the needs of our endurance sports customers are different from our Hunting and Fishing customers, and each require a different approach. With over 12 years in the business, we understand these unique differences, and are recognized by our customers as a credible technology leader and a partner.
Second, we've developed a scalable horizontal cloud platform. Success in the underserved activities market is dependent on building a sustainable economic model, which is simply not possible through building vertical applications alone, and we have built a powerful horizontal SaaS platform, ACTIVE Works, that provides a common set of infrastructure and services, including online registration, payment processing and membership and communication tools, to meet the shared needs of a very broad set of customers across multiple markets. We also provide APIs or partner solutions, can be quickly integrated with our technology to enable widespread access.
Third, we market and distribute activities. We work closely with our customers to grow participation and create great experiences for their end consumers. We've made participation in activities more convenient, more intuitive and more social, offering everything from activity recommendations, mobile registration and business event gamification.
We have been focused on growing our business aggressively from the start. Despite this growth curve, from the beginning, we've been constantly asked how big can this market really be. As I said earlier, with 800,000 total organizations and 1.7 billion registrations in the space, we believe it is big enough to sustain strong growth moving forward. That said, our charter today is focused on being great and not just being big. Our systems address organizers' needs with deep market-specific functionality that has been developed, in many cases, for over a decade. We are building technology to address business automation issues for our organizers. Whether a customer is big or small, we hear they have manual processes, multiple systems and limited resources.
First is register. The first issue we solve is payment automation. It seems simple on the surface, but this is the commerce engine for every single one of our organizers, to online registration and payment processing, reservation and ticketing, permitting and licensing.
Next is to manage. We are the operating system for our customers, events, memberships, facilities, people, staff, finance management and reporting. We are fundamental to our customers' operations and are deeply embedded within them. This creates significant barriers of entry for would-be competitors.
Finally, market and distribute. We know it's not enough to address the technology needs of our customers, we must help them engage and attract participants, ultimately, to help them grow their business. We do this through supporting customers with marketing and advertising, development of mobile applications, social channels, and creating a growing network of partners, who will help broaden the distribution channels for the activities our organizers are selling. Ultimately, it's our goal to make activity accessible anywhere. You'll note that the way we talk about delivering customer value is connected to how we look at the market and how our technology is built.
We have great customers. Over 55,000 of them, from churches to state governments, enterprise-level companies like Oracle to the National Park System and Little League Baseball. For example, Cisco uses Business Solutions enterprise offering, conference, to manage Cisco Live! domestically and internationally. IBM uses the StarCite SMM platform to manage its corporate meetings. We work with local YMCAs to manage their facility reservations and recreational program registrations. San Antonio YMCA, Los Angeles YMCA and hundreds of others use Active. California is a longtime outdoors customer for campgrounds and hunting and fishing licenses. And Chicago is a local government customer that uses our technology to streamline operations and process payments. IRONMAN, or WTC, is their -- which is their corporate organization, is a long-term -- longtime Endurance customer. They use us for race registrations. We just recently won a 5-year contract and beat out an increasingly competitive market to provide global technology services to that organization.
Finally, the USTA, the United States Tennis Association, is a longtime customer. They've used our technology to market to new and existing members and to grow the sport.
In summary, we have established significant barriers to entry. Our current market leadership position has led to a significant advantage, with respect to scale, as well as deep domain expertise that stems from many years of servicing our markets and customers.
Further, we have focused on developing exclusive, multi-year contracts with many of our customers and have invested heavily to ensure we are helping these customers grow their events each year.
In our first and most mature market vertical, triathlon, we have built a customer base of over 70% of all events in that market. If you look at our overall business in comparison, we have roughly 50,000 customers, or 6%, of the addressable North American market. In most cases, much of the other 94% of the market is still using traditional pen and paper methods, or in the best cases, using much less sophisticated automation tools. Our day-to-day job is to have all our vertical markets mimic the progression we have made in triathlon. This is the responsibility of our sales and marketing organization daily. If we can do this, it would mean a twelvefold increase in our number of customers. We are increasing our leadership position by building a world-class brand, investing in sales and marketing, creating self-service tools, and improving account management efficiency.
There are multiple drivers for fueling our growth. First and foremost, we are focused on acquiring new customers. Today, this is driven by our goal of adding more organizations. Second, each time we add an organization, there is an opportunity to grow that customer and/or business in 3 distinct ways: drive offline registrations to online. For example, we are working hard in the outdoors market to move call center transactions to online transactions. Each customer we work with has many events that our technology can support. We work with each of them to move more of their events and different types of events online. And finally, we have the opportunity to distribute activities on behalf of our organizers. At the end of the day, our goal is to engage participants on behalf of our organizers, to help them grow. We develop mobile apps, websites and partnerships to make activities more accessible to more people, and ultimately, increase participation across all of our customers.
I shared the importance of creating great vertical technology. I also want to share that we develop common services that are leveraged across vertical -- across market verticals, by capturing data across services. We can repackage that data to provide different organizer and/or participant experiences. I'll show you more of that in a minute.
It's also critical that we deliver the right level of technology to the right size customer. We've made it more efficient for smaller customers to get access to big technology, and we stay on the cutting edge of what our enterprise customers need, as they drive scale to our business.
Finally, our platform grows as common needs grow. As vertical applications become more common, we can fold them into the horizontal platform, and we've left room to leverage API technologies to create developer networks to help expand our technology footprint quickly. We built this into -- we built this to support a multibillion-dollar company. This is all made possible by our 1,000-person technical team, with over 600 techies in North America and over 300 in China. We have, by far, the largest, most sophisticated tech team in the industry, and this will be a key source of a competitive advantage as we move forward.
Now, I'm going to give you 4 quick snapshots into how our technology actually works for customers. Last summer, we powered the U.S. Olympic trials for swimming. While Michael Phelps and Ryan Lochte were dueling in the pool, behind the scenes, Active technology was managing the whole event. Meet Manager handled seeding and scheduling, athlete and heat management, and times management. All of the data flows through our Active Networks platform, then the data is repackaged and presented to spectators in the form of Meet Mobile. Meet Mobile transforms the participant experience by distributing realtime results and cataloging swimmer times.
Here's how the model works for South Carolina State Parks. Field manager handles park status, inventory, and connects with the back office. All reservations are available through our ReserveAmerica website and mobile app.
Here's how the model works with Minneapolis Park and Recreation. Registration, facility scheduling, POS and payment processing are handled through a single system. Data, payment processing and asset services are used within ACTIVE Works, and ultimately, all the activities are available on Minneapolis' website and mobile application.
Here's John Chambers giving his keynote at Cisco Live! last year. It was held here in San Diego, and Active had handled all the registrations, financial management and participant data centrally. This is the same system that manages the speakers, the sponsors and the partners of the overall conference. All registrations are connected to on-site check-in technology that tracks engagement. Here's the screen attendees saw when they registered on site. Engagement metrics are distributed through the participant and organizer mobile apps. An organizer can see who attended what sessions, which devices attendees are using. They can also track surveys realtime while John Chambers is speaking. And the experience comes full circle. The ROI in the entire event was increased, as Active provided seamless communication between the organizer and the participant.
Okay. We have a predictable model, and report our revenue in 2 segments. Our technology segment represents roughly 88% of our total revenue, and is the result of the number of organizations utilizing our technology solution, the number of registrations, and the revenue per registration. Our marketing services segment represents approximately 12% of our total revenue, and it's comprised of advertising sold to both our technology customers and to brands, as well as commerce revenue. Overall, we have about 85% visibility of our revenue as we enter into a year. We have a very low churn rate, with less than 5% annual registration revenue churn, and we typically have 3-year exclusive contracts with our customers.
In 2012, about 55,000 organizations utilized our technology to manage their events. That was up 7% from the prior year. Our solutions managed approximately 90 million registrations, up 12% from 2011, and the amount of revenue we earned per registration was $3.07.
In 2012, we generated $419 million of revenue, up 24% from the prior year. Adjusted EBITDA for 2012 was $38 million.
This concludes the presentation. I will now turn the meeting back over to Scott to conclude the formal portion of the meeting.
Thanks, Jon. Please be advised that voting is now closed. At this point, the voting tabulation has been completed, and we will report the preliminary results of the matters voted upon today. Proposal #1 is the election of directors. As provided by the plurality vote standard in our amended and restated bylaws, the 2 candidates receiving the highest number of 4 votes will be elected as Class II Directors. Koury, please report the vote.
The following 2 nominees have received the highest number of 4 votes: Jon Belmonte with votes in excess of 97% of the votes cast; and Stephen Green, with votes in excess of 81% of the votes cast. The 2 nominees are elected directors to serve until the 2016 Annual Stockholder Meeting, and until their successors are duly elected and qualified.
Thanks, Koury. Proposal #2 is the ratification of Ernst & Young as the company's independent auditors for the current fiscal year. The proposal requires the affirmative vote of the majority of the shares voting on this matter. Koury, please report the vote.
The proposal has received affirmative votes, representing more than 98% of the votes cast.
Proposal #3 is the advisory vote on executive compensation.
The proposal has received affirmative votes, representing more than 56% of the votes cast.
Thanks, Koury. The proposals are approved. We will report the final voting results on these matters on a Form 8-K filed with the Securities and Exchange Commission within 4 business days.
We have completed the formal business of the meeting, and our stockholder meeting is now adjourned. We will now proceed with the Q&A session. I would like to introduce David Eisler, VP, Senior Securities and Corporate Counsel, who will moderate the Q&A. David, do we have a first question?
Thanks, Jon. The first question is, can you please address your intentions for the board vacancy? And would you consider either declassifying or changing the assignments of class, since your shareholders have an opportunity to vote for or against this future member next year?
The pending vacancy on our Board is the result of the recent resignation of Matt Landa as Chief Executive Officer, and it's been an extremely atypical event. We didn't believe it was in the best interest of the company to renominate Mr. Landa to a 3-year term, given he's no longer serving as our officer of the company. Our Nominating and Corporate Governance Committee, together with our Board, is currently in the process of evaluating candidates to fill the board vacancy, but did not have sufficient time to finish this process prior to the company's 2013 Annual Meeting. As set forth in our corporate governance guidelines, the criteria for board members generally include, among other things, an individual business experience and skills, as well as independence, judgment, knowledge of the business and industry, professional reputation, leadership, integrity, and the ability to represent the best interests of our stockholders. The Board will utilize these criteria in its evaluation of candidates. Additionally, the Board considers all input in its corporate governance policies.
Thanks, Scott. Question #2. Can you please discuss your approach to handling the potential for significant future dilution of owners, given current stock granting policies and a low value of the stock?
We're competing for talent in a very competitive market, and employee compensation is an important part of retention. The Compensation Committee reviewed industry norms at the time of the going-public, and resulted that this structure was consistent with the most newly public companies. We believe long-term equity incentive compensation is a critical component of our compensation program, and helps align management incentive with shareholder return.
Since we have received no further questions. That concludes our meeting today. Ladies and gentlemen, thank you very much for attending and for your continued interest and support in Active. Have a great day.
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