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The Active Network (NYSE:ACTV)

Q2 2013 Earnings Call

August 01, 2013 4:30 pm ET

Executives

Brinlea Johnson - Director

Jon Belmonte - Interim Chief Executive Officer

Scott Mendel - Chief Financial Officer and Principal Accounting Officer

Darko Dejanovic - President

Analysts

Kevin Potterton - RBC Capital Markets, LLC, Research Division

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Bill Sutherland

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 ACTIVE Network Earnings Conference Call. My name is Erica, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Brinlea Johnson of The Blueshirt Group. Please proceed.

Brinlea Johnson

Good afternoon. Welcome to the ACTIVE Network Second Quarter 2013 Earnings Call. With me today is Jon Belmonte, Interim CEO; Darko Dejanovic, President; and Scott Mendel, CFO.

Before we get started, we would like to remind you 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 or our periodic filing reports 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 call, we do mention certain non-GAAP financial measures, which will be explained during the call. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings press release, which was made available prior to today's call. This conference call is also being recorded and will be available for replay and Internet broadcast on the Active Network Investor Relations website at www.activenetwork.com, under Webcasts and Presentations.

I will now turn the call over to Jon Belmonte.

Jon Belmonte

Thanks, Brinlea. Good afternoon, everyone, and thank you for joining us. I'm excited to be back up to speed here and I'm pleased with the progress we're making on the initiatives I briefly outlined during last quarter's call. First, a quick update on the permanent CEO search. The board is currently evaluating a wide range of strong candidates for the position. We remain committed to finding the best candidate for the job. And of course, we'll let you know when we do.

That said, we've been very busy driving the business forward. We delivered strong results this quarter, with top line revenue growth coming in at the high end of our guidance range, and adjusted EBITDA results that exceeded the guidance we gave last quarter. And we continue to focus on a number of prioritization efforts that we believe will enhance our operational performance going forward.

To be more specific, as I mention prioritization today, some of the efforts I'm describing include: Redeploying resources to the highest ROI projects; driving sales force productivity based on activity per rep and per market; and securing increased output and efficiency from support and back-office teams to drive EBITDA margin accretion.

I'll start by addressing some of the areas of the company on which I've been focused, as well as share a few Q2 business highlights. Then I'll turn it over to Scott to review the second quarter financial results in more detail and discuss our outlook for the second half of the year.

Let's talk about product development. I've been working closely with Darko and his team prioritizing key products and projects designed to help maximize employee ROI for the rest of this year. We're also very focused on completing our product consolidation efforts, and Scott will provide some specific data around the impact on our overall R&D spend.

I think it's important to be clear about the difference between product consolidation and customer migration. At the beginning of the year, we set out a consolidation roadmap that we are currently on track to fulfill in 2013. That plan has some products reaching end of sale and other products reaching end of life by the end of this year. And while some migration of customers has already happened, or is currently happening, additional migration activity will follow consolidation.

For example, in Hunting and Fishing, we have materially completed the ACTIVE Works Outdoor product consolidation. Now we are in the midst of implementation for the State of Missouri, which is currently scheduled to complete migration and go live by Q1 2014. And we are entering Phase 3 of 4 phases as we migrate Saskatchewan to ACTIVE Works Outdoor. And in sports, approximately 55% to 60% of legacy platform registration revenue will be migrated to ACTIVE Works by the end of the year. This is slightly behind our original projection, as we have invested more time and care migrating our largest clients, which has impacted our timeline for migrating smaller clients. However, I have no reason to believe this will impact our end of life timeline for the legacy endurance systems.

We talked about ACTIVE Works a lot in the past and I want to provide some concrete examples of how we can drive value across multiple solutions at one time.

This quarter, we released ActiveCheckout, a new service that can be utilized by all of ACTIVE's applications. It supports a wide variety of payment types, including credit and debit cards and e-checks, as well as multiple payment scenarios, like recurring billing, payment plans and deferred billing. This service will allow us to test and optimize our transaction completion rates across all of our products in an efficient manner.

Additionally, ACTIVE Works is now a multilingual platform and is internationalized to support global events. We recently added the following languages: U.K. English; German; French; Italian; Spanish and Portuguese; Swedish; and of course, French-Canadian. This allows for participants in those regions to interact with ACTIVE in their native language, local settings and currency. In fact, this internationalization was leveraged in Q2 to support our new global partnership with World Triathlon Corporation, more commonly known as IRONMAN.

We are focused on leading the market in offering technology that is used to manage increasingly complex events and activities.

During Q2, we powered leading business events like Cisco Live!, Adobe MAX and Symantec Vision, among others. We pioneered a lead retrieval program to arm exhibitors at these premier shows with a tablet and RFID scanner to more quickly capture leads and establish an immediate relationship with potential buyers.

Additionally, Connect [ph], our conference attendee app, was optimized for the tablet and we improved our interactive mapping and scheduling to more easily connect attendees and exhibitors. We think these capabilities further differentiate us relative to competition, and this type of rich functionality allows us to serve the most sophisticated organizers of global business events.

Additionally, you may have seen our announcement last week about the new RegOnline that fully launches later this month. Our beta customers and the meetings industry in general have responded very well and we will be closely watching the performance and adoption of the upgraded product as it launches broadly over the next few months.

With these product updates in mind, I'd like to take a brief moment to share how we see the business solutions market and how we are addressing it. We define business solutions as including the enterprise market, as well as commercial organizations at SMB, small and medium-sized businesses, that represent the greatest number of potential customers in the market. My belief is that we have a strong product offering and a strong position in a largely untapped enterprise market and we've been moving aggressively -- moving this offering more aggressively into the commercial space. We also see great potential with the small and medium business market, where a very PR-oriented competitor has historically enjoyed some degree of free reign. Here, we will be leveraging our new updated RegOnline and newly integrated StarCite functionality to further capitalize on this wide-open market opportunity. Stay tuned.

While our products are known for their deep functionality, we are also now increasingly prioritizing the usability and desirability of our products through improved UI and Ux. The new RegOnline I just mentioned is one example.

You've also likely seen the new look for active.com. Our redesign improves the activity search functionality, offers personalized event feeds built off user profile preferences and provides users with alerts and notifications before race registrations open and close. All of this is intended to drive more participation in our customers' events and strategies, a core part of our company strategy.

Let me now turn my attention to sales and marketing. There's been a lot of focus on our return on investment in these areas and rightly so. In the second quarter, we added 31 sales personnel, focusing primarily on 2 of our fastest-growing categories: Communities and business solutions. This brings us to 58 adds year-to-date, right in line where we expect it to be. That said, as we head into the second half of the year, we plan to slow the ramp in sales headcount. We have concluded the most effective way to accelerate revenue and bookings growth, while also driving EBITDA margin accretion, is to improve our activity and results per sales rep, as well as better prioritize where we focus our current sales and marketing investment.

On a related note, I'd like to tell you some of the exciting wins from the second quarter, as they demonstrate the power of our technology solutions and our focus on continuing to scale the business.

Starting with communities. We had 2 strong competitive wins with the City of Mesa, Arizona and YMCA of East Bay, which is in Oakland, and we won the District of Cook County in Illinois, which is the largest forest reserve district in the nation, with over 40 million annual visitors. YMCA of Greater Kansas City and Carlsbad, California Park & Rec have also signed on to use ACTIVE Net. These wins showcase the momentum we see with YMCAs and park districts moving to our cloud technology. And World Wrestling Camps and Ann Arbor Art Center are examples of 2 nice wins for our camp manager solutions.

Turning to sports. We continue to see growth winning new mob events like Rock-N-Glow. Additionally, in Q2, we powered many iconic endurance events. Big Sur Half Marathon, Austin Marathon, and the Cleveland Marathon, the Seattle Classic and the Five Boro Bike Tour and the 40,000-participant Cooper River Bridge Run.

More recently, we launched a partnership with RaceHQ to help event directors better project manage their events and registration. Finally, ACTIVE powered its longest tournament ever, as we rolled through the 81-day, 200,000-game United States Bowling Congress 2013 Women's Championships.

As we've discovered in the -- as we've discussed in the past, outdoors is typically a slower-growing segment for us due to more sizable contracts taking longer to both win and to implement. In addition to simply securing new customers, we are very focused on optimizing our current customers.

For example, our channel shift program is designed to drive more reservations online. Four Hunting and Fishing clients, Tennessee, Louisiana, Minnesota and Saskatchewan are now mobile Web-enabled. We believe this will increase online transactions as a percentage of total transactions, which is a big win for our state customers, their consumers and for ACTIVE Network.

Finally, in the business solutions space, we continue to experience competitive success selling to global enterprise companies, as demonstrated by new wins with Vodafone, who signed on to use StarCite. Amazon Web Services, who has signed on to use the conference product. Conference also beat out a competitor to win over SAS Institute, one of the world's largest private companies.

In the past, we have highlighted the opportunity to cross-sell conference technology with StarCite, and we have many examples of this, including Cisco, Xerox, and Computer Associates. But what's more exciting to me though is our ability to capitalize on the overall market opportunity, continuing to win new customers across the enterprise space and by further expanding our technology to replace point solutions and Excel spreadsheets in the wide-open commercial and SMB markets.

In summary, we are executing in line with what we communicated last quarter. In conjunction with the ongoing execution of our strategy, we also noted today, the company has received a number of expressions of interest from outside parties, ranging from an investment in ACTIVE Network to an acquisition of the company. As a result, our Board of Directors has a committee in place comprised of its independent directors to consider and evaluate strategic alternatives. There can be no assurances as to whether any particular strategic alternative involving a third party will be recommended by the board or undertaken. Or if so, upon what terms and conditions. As you can appreciate, we do not intend to disclose developments with respect to the progress of its evaluation, until such time as the board has determined a course of action or otherwise deems disclosure appropriate.

The Board of Directors and management team intend to evaluate all options carefully in order to maximize shareholder value. We will remain focused on operational efficiency to help drive EBITDA expansion in the near term, while repositioning the company towards long-term growth. We remain confident in our strategy and we believe our business model lends itself to increasingly predict -- increasing predictability and profitability, with enormous market opportunity in front of us. We will continue to operate in the ordinary course of business.

Now I will turn it over to Scott, who will explain in more detail how our prioritization and focus on operational efficiency have translated into stronger financial results.

Scott Mendel

Thanks, Jon. I'll cover 2 things today, the details of our Q2 financial results, and then guidance for Q3 and full year 2013. As we walk through the results for the quarter, please note that my comments on growth will refer to year-over-year changes unless otherwise indicated.

As Jon mentioned, we delivered strong second quarter results, with total revenue of $132.4 million towards the high end of our previous guidance range and up 9%. Registrations were approximately $29.7 million, up 6%, while revenue per registration grew 4% to $3.10. Both of these metrics were in line with the guidance provided.

Let's drill into revenue in a little more detail. Our technology segment revenue was $119.5 million, up 10%. Within this segment, net registration revenue for the quarter was $92.3 million. The remaining technology revenue increased 12% to $27.2 million. Marketing services, our other reporting segment, was $12.9 million, in line with expectations. Results in this segment reflect our increasing focus on organizers, while reducing our on-site promotions and brand advertising mix.

Looking at the remainder of the year, we expect marketing services to continue to be in the range of $12 million to $14 million in both the third and fourth quarters.

Gross margin improved to 56.6% this quarter, and this is the fourth quarter in a row we have delivered year-over-year gross margin improvement, and we expect this trend to continue throughout the remainder of 2013.

As a reminder, our GAAP gross margin includes the amortization of previously capitalized software, and during the second quarter, noncash items, mainly software amortization, drove 100 basis points of headwind versus prior year, and yet, we were still able to show GAAP gross margin improvement. On a non-GAAP basis, excluding those noncash items, our gross margins improved 110 basis points to 64.3%.

Now let's turn our attention to expenses. Overall, operating expenses for the quarter were $77.7 million, up 14%. Excluding the cost associated with the onetime management change, operating expenses would have been $70.5 million, up a modest 4%. As we discussed in the last earnings call, our leadership team is scrutinizing all expenditures to drive operational efficiency.

So let's look at the 3 main categories of operating expenses. First, sales and marketing expense. In the second quarter, sales and marketing expense was $27.1 million, up 12%. As Jon mentioned, we've been adding sales resources in our communities and business event verticals, while focusing on margin accretion.

Looking at the second category, R&D expense was $21.5 million, a slight increase of $400,000. We capitalized $5.7 million of software development related to new functionality.

Importantly, the amount we are spending in R&D relative to revenue is declining. Here's the proof. R&D headcount has decreased by about 60 people versus prior year. And on a year-to-date basis, the gross R&D spend as a percent of revenue has decreased by 200 basis points versus prior year to 22.6%. We do expect these trends to continue as a result of product consolidation and efficiency.

Finally, G&A was $25 million, up 48%. The main driver of this increase was the cost associated with the management changes in the second quarter. Those separation costs totaled approximately $7.2 million, with about $5.7 million in stock-based comp and $1.5 million of actual cash expenses. Excluding these onetime costs, G&A expense for the quarter would have been $17.8 million, up 5%.

Loss from operations in the second quarter was $2.7 million, compared to operating income of $700,000. Excluding the onetime charges associated with the management change, we would have reported operating income of about $4.5 million this quarter.

Looking at our results on a per-share basis, our second quarter net loss was $4.5 million or a loss of $0.07 per share. The weighted average common shares were 61.6 million.

On a non-GAAP basis, excluding the impact of certain noncash items and the onetime change associated with the management -- onetime charge associated with the management change, second quarter diluted income per share was $0.09. The diluted weighted average common shares were 64.8 million.

Adjusted EBITDA for the quarter increased to $22.2 million, driven by our continued focus on operational execution. Excluding the cost of the management changes, adjusted EBITDA would have climbed to $23.7 million for the quarter, representing strong margin improvement of 130 basis points on a year-to-date basis. On a year-to-date basis, adjusted EBITDA would have been $29.9 million resulting in margin accretion of 460 basis points.

Now let's turn our attention to noncash items. For the quarter, depreciation and amortization expense was $15.5 million and stock-based comp was $9.5 million, which includes the $5.7 million associated with the management change. Year-to-date, we generated $74.6 million of cash flow from operations as a result of typical seasonal patterns and solid revenue growth. Capital expenditures including software cap were $25 million for the first half of the year.

To finish up our review of second quarter results. We continue to operate the company with no debt and net operating cash defined as cash plus registration receivable less registration payable was $22.8 million at the end of the quarter.

Now that we've walked through the details of our Q2 financial results, it's time to turn our attention to our 2013 outlook. For the third quarter, we are targeting revenue to be in the range of $113 million to $116 million, and adjusted EBITDA to be in the range of $15 million to $17 million. From a metric standpoint, we expect third quarter registration growth of approximately 2% to 4%, and revenue per registration growth of approximately 1% to 4% over the prior year period. Net loss is expected to be in the range of $9 million to $4 million and our basic share count is expected to be approximately 62 million to 63 million shares.

During the remainder of 2013, we will continue to focus on driving operational efficiency, which is reflected in our full year guidance. Given our first half results and our expectation for the third quarter, we now expect full year revenue to be in the range of $451 million to $456 million. We are issuing improved full year adjusted EBITDA guidance in the range of $51 million to $54 million, which includes a decrease of approximately $12 million in operational expenses compared to our original full year guidance. This is the result of our efforts to allocate investment and resources in areas where business that yields the highest margins.

Our year-to-date results and our revised forecast are a big step towards our EBITDA target of 25%. And we look forward to continuing this trend in the second half of this year.

Before opening up the call for questions, I'd like to remind everyone that the purpose of today's call is to discuss our financial results, and I ask that you please limit your questions to our earnings announcement. We won't be able to comment further on the formation of the Strategic Transaction Committee. Thanks in advance for your consideration and cooperation.

With that, I'll open it up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Andre Sequin with RBC Capital Markets.

Kevin Potterton - RBC Capital Markets, LLC, Research Division

This is actually Kevin on for Andre. Just thinking about your improved outlook for EBITDA for the full year, is that just being driven by your decreased outlook for hiring in the sales force and your product consolidation, or is there something else we should be looking at as well?

Scott Mendel

So this is Scott. I'll start off with the financial background behind that. A couple of things will continue, Kevin. First, we'll continue to see gross margin accretion throughout the remainder of the year. The second main driver of the improved EBITDA guidance is also the efficiency that we have seen and will continue to see in the R&D expenses. The consolidation efforts are really starting to pay off for us. Additionally, beyond that, we are just questioning every expense that we are -- that is out there and making sure that we're efficiently spending across the most highest margin priorities that we have across the business.

Operator

[Operator Instructions] Next question comes from the line of Steve Rubis with Stifel.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

It's more of a strategic question and hopefully you can answer it. But what type of opportunities do you guys have to leverage sort of the wearable computing space, you think of Fitbit and Jawbone UP and some of the devices that are proliferating out there. Given that these devices really focus on your core market, do you guys have any opportunities to operate in that space and how do you guys view that space in general?

Darko Dejanovic

Sure. This is Darko, I'm going to answer that. As you saw a couple of quarters ago, we announced that we have provided the software for a couple of similar devices such as goggles, ski goggles, and we continue developing that space. I think the directional you're going to look forward to, looking at partnerships with some of the companies that provide these products. We have tremendous amount of data and so that will continue going forward, similar to the partnership that we announced at Google conference 2 or 3 quarters ago.

Jon Belmonte

This is Jon. Let me just add to that. So core element of the active.com experience for our participants and our consumers is to help them through what we call the participant journey, right? So it's not just a matter of engaging them and interesting them in participating an event, but it's also in helping them get to that event and have the most success at that event, regardless of how they define that. Training is obviously a big part of that equation. And tools like Fitbit, as well as some of the more performance-oriented applications and tools out there are a key part of that. So yes, we look forward to integrating further with those.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Great. I guess, as a quick follow-up, you have a lot of data on the consumers that use your platform, your runners, hunters, et cetera. Who do you believe your data might have strategic value to? Or do you think there's more value than just registration? Is that data leverageable into consumer insights, is it a credit card company, what kind of thoughts do you guys have there?

Jon Belmonte

At this point -- so this is Jon again, at this point, our key focus is to leverage that data and access to that data to drive more participation in our organizer customers' events and activities. So by knowing that you live in a certain area and you are registering for a long distance event, just to stay on your endurance market focus, by knowing that you're registering for a long distance event, we can easily suggest to you shorter distance events along the way and make it easy for you to find those in your area as training events, right? We also are developing the understanding of where there's cross-pollination from certain events, one event to another, in part by what our users are telling us in their user profiles.

Darko Dejanovic

And to add to Jon's point, I think there's probably 2 or 3 categories of beneficiaries of that data. Number one, organizers, the more data we can provide to them, they're going to be able to attract and process those registrations much easier and target those consumers. B, as Jon mentioned, consumers, in order to be able to recommend future or other events that they should participate in. And then, in aggregate, taking that data and working with third-party partners where we can provide in aggregate data that they could utilize. So it's between consumers, organizers and third-party in aggregate.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Great. I guess, the last thing, in terms of competition, we've had some people question us in past quarters that are you guys losing share? Can you talk about the competitive landscape and kind of how you view it right now?

Jon Belmonte

Yes, absolutely. So from my perspective, and it sounds trivial, but I think it applies particularly within our markets, competition validates the market opportunity. The most heavily competed market, and the market, I think, that receives probably the most attention, is the business events space. So let me address that first. So that business events space is huge and largely unaddressed. And that applies really to most of the markets we're in. Our success, frankly, is determined by our own execution. It's not based on what our competitors are doing, right? So again, let me point to this business events market. So rather than trading jabs with competitors out there, we are very successful against our competitors in the enterprise space, right, which is the higher end of the market, with the large, complex, global event organizations. And the reason for that is we have very deep functionality, which is a requirement for the success of those sophisticated customers. Examples of that are attendee and conference management, they include speaker management, sponsor and exhibitor manager -- management, and then lead retrieval. And then, in some of the -- in what we would call, kind of the commercial SMB space, I am very excited about the improvements that we're making relative to our execution, in terms of sales and marketing and product. Frankly, I really like our position overall in the market. I mean, we are the largest player out there overall. And given the track record and the assets we have in place, and the progress that we're making on improving the things that we know we need to improve, and our prioritization, I feel like we're in a good position.

Operator

Your next question comes from the line of Brian Fitzgerald with Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Last quarter, you talked about production consolidation into ACTIVE Works and the plan to close 7 data centers this year. I'm wondering how that is progressing, is it on track? Your expectations, is it ahead? And how should we think about the impact to expenses?

Darko Dejanovic

This is Darko. I'm going to answer that. Yes, we are completely making progress. As we outlined over the last few quarters, the data centers are on schedule, with vast majority of those being done this year. There will be a handful of those that, as planned, will be completed in 2014, and then we're going to be done. But I would say, in data center consolidation, we're definitely on schedule or maybe even a little bit ahead of schedule. In terms of product consolidation, we feel that we are progressing as scheduled, there's probably a couple of small areas or clients where we had slight delays, primarily due to client availability and resources. But overall, if I look at Hunting and Fishing space, we have materially, as Jon mentioned earlier, completed ACTIVE Endurance. We spent a lot of time this year, both from a product consolidation and customer migration on larger customers and we are kind of focusing on a longer tail and smaller customers and those will be materially complete in the first half of next year. So no major surprises, we feel very confident that we're on schedule as planned. I'll turn it over to Scott, who will talk a little bit more about how is this going to create leverage in an R&D model.

Scott Mendel

Brian, its Scott. So the margins that we are forecasting or gave guidance on contemplate 250 to 300 basis points of EBITDA margin accretion for the year. And certainly, the data center consolidation and the efficiency associated with that consolidation are a component of it, along with the allocation of resources that we're making across the entire organization, pointing those resources towards the highest margin rate parts of the business.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Great. And then one quick one, I might have missed it. Did you guys provide any color in terms of your mobile traffic in the quarter?

Darko Dejanovic

The mobile traffic in the quarter is, for active.com, in Q2, 41% for unique visitors, which is 49% year-over-year growth, and then 31% of page views, which is 54% year-over-year growth, came from a mobile device.

Operator

Your next question comes from the line of Nat Schindler with Bank of America Merrill Lynch.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

This is more a question for Scott. Just going a little bit into the guidance, you're expecting a little bit less than you have for the last 3 years as a percentage of your revenue in the second half. Is there anything that -- and you had a little bit more in this quarter, so did anything -- did you -- did anything occur that brought more revenue into the first half than normal?

Scott Mendel

Nothing material, Nat, not from a weather perspective, et cetera. So what we're looking out for the remainder of the year is our detailed roll-up of our metrics and that's what we use to provide the guidance that we have for the back half of the year. That's what we're seeing at this point in time and we feel like that level of guidance is appropriate. The only other thing I just would point out is I gave the guidance specific in my prepared remarks, we do think marketing service will continue around that $12 million to $14 million of revenue per quarter. That's a slightly different profile than in prior years.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Okay. That's interesting, because the range, it seems to be, on a year-over-year basis, going down in marketing service, particularly in this quarter, even as comps got easier, yet with $12 million to $14 million, even in the -- if you get towards the high end of that range, that would be quite a big acceleration in the back half of this year.

Scott Mendel

It would not be an acceleration in the third quarter, Nat, but it would be an acceleration in the fourth quarter on marketing service specifically. And that's relative to the comp from last year, not the level of activity we're seeing this year. It's been relatively consistent throughout this year from a marketing services perspective.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

And do you see anything that's really changing that around or is it traffic-based or pricing-based more?

Scott Mendel

The impact that we're having in marketing services is more related to the increased focus on our organizer customers and pointing our marketing services offerings towards those organizers to help them from driving more participation perspective, and less reliant on brand advertising and on-site promotion. That's the strategic change that's been going on throughout this year on the marketing services line.

Operator

The next question comes from the line of Bill Sutherland with Emerging Growth Equities.

Bill Sutherland

What's the percentage of revenue that's going to ACTIVE Works currently?

Scott Mendel

From the -- let's do it 2 different ways. Number one, from a spend perspective, about 60% of our R&D spend is on ACTIVE Works platforms. From a percent of revenue, the one that we've been tracking the most closely, Bill, in providing guidance on is with ACTIVE Works Endurance, because that's where the migrations have been happening. We're running right around 50% or so, we'll be between 55% and 60% for the year.

Bill Sutherland

Okay. And I was also curious, I haven't asked this in a little while, but in Hunting and Fishing space, where are you with online registration as a percent of total?

Jon Belmonte

So Hunting and Fishing, so far in Q2, ran at about 15% was online, 15% of the total was online, versus about 14% last year. I will say that we think there's a great opportunity to partner with our state customers to drive online conversion. And I have a lot of hopes for this channel shift program, which we're actually prioritizing more highly now than we had been in the past. But we do have some good early momentum in getting clients up to speed on that, and engaged in that program. That said, I'm not willing to make any commitments around how quickly that will drive revenue growth within the outdoor space. But I do think it is one of our best opportunities to do so in the medium to long-term.

Bill Sutherland

Scott, did you have a percent of revenue if that was international?

Scott Mendel

Right around 3%, Bill, is international at this time. But I think the first half growth rates were right at about 11% growth in the first half.

Bill Sutherland

Okay. I'm curious if you guys are applying any more selling efforts, now that you've got the multilingual platform, to international?

Darko Dejanovic

As we added resources in sales over the last couple of quarters, we added the appropriate number to the international market as well.

Bill Sutherland

Is it mostly Europe, Darko?

Darko Dejanovic

Europe and Asia Pacific as well.

Bill Sutherland

Okay. And then last, Jon, I'm just kind of curious, as you go with the SMB space more intently, how do you go to market there, do you think, off your -- based on your current model?

Jon Belmonte

It's a mix of inbound lead generation, so digital lead generation on an inbound basis, as well as aggressive outbound calling and selling. Candidly, one of the areas -- it is one of the top areas of focus, when we talk about prioritization and operational excellence and efficiency, is on our customer acquisition strategy within the SMB market, particularly for business events and business solutions. The great thing from where I sit is it's a relatively straightforward area to improve. And we've got a great team there, we've got great management in place and I'm liking the early results that I'm seeing, from where I sit, at least.

Bill Sutherland

Good. And then, Scott, last one. When I look at the third quarter guidance for EBITDA, it looks like there's no significant leverage in that quarter versus year ago in terms of the EBITDA margin at the midpoint. Any color there?

Scott Mendel

We'll still see around 90 to 100 basis points is kind of what we're expecting from an EBITDA margin rate accretion in the third quarter. There's no -- nothing material that's making it different, that's just the roll-up that we're seeing based on the metrics. I think, for the total year, as we talked about, probably around 250 to 300 basis points margin accretion on the EBITDA margins.

Bill Sutherland

And that's inclusive of your second quarter onetime?

Scott Mendel

That is inclusive of our second quarter onetime. On an EBITDA basis, just to be clear, Bill, the impact of the management change is about $1.5 million on an EBITDA basis, because a lot of that was stock-based comp. The only other impact that would have some on third quarter, a little bit in fourth quarter, would be the new hires, they started to ramp up through the end of first and second quarters, so we do have the new sales hires, even though we're going to level off, those new sales hires are on and so that expense is flowing through as we enter into the back half of the year, which tends to be, seasonally, our lower half of the year.

Operator

We have no further questions. I will now turn the call back over to management for any closing remarks.

Jon Belmonte

Thanks. I just wanted to thank everybody for joining us today and reiterate I am very excited about the opportunity ahead of us. We appreciate your continued interest in the company and look forward to keeping you updated on our progress.

Operator

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect, and have a great day.

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