Onvia, Inc. (ONVI), a provider of comprehensive government-business market intelligence, reported financial results for the second quarter ended June 30, 2013.
Subscription revenue grew 3% over Q2 2012, compared to 1% year over year growth in Q1 2013. This represents our second positive growth rate in subscription revenues since Q2 2010. The 2013 operating initiatives are designed to drive subscription revenue growth.
Total revenue was flat in Q2 2013 and year to date due, in part, to the planned decline in report revenue compared to the prior year. Report revenue is not expected to increase in the foreseeable future because the content previously delivered as a one-time report is now included in the subscription solutions launched in the second half of 2012. This is consistent with our objective of driving the majority of our business toward recurring revenue.
ACV increased by 2% to $19.0 million in Q2 2013 from $18.6 million one year ago. Growth in ACV indicates that new client acquisitions, contract expansions and improving client retention rates have more than offset the impact of client attrition. ACV represents the aggregate annual value of our subscription contracts and is a leading indicator of future revenue growth. For more information about ACV, see “About Annual Contract Value (ACV)” below.
Annual Contract Value per Client increased 13% to $5,002 per client in Q2 2013 compared to $4,431 in Q2 2012. Growth in ACVC demonstrates that an increasing number of clients have a strategic interest in the public sector. Companies within this target market typically have higher ACVC and renew at higher rates, which are key attributes of a profitable long-term client.
As of June 30, 2013, Onvia has 3,800 clients, down 10% from 4,200 clients during the same period one year ago, and the net loss in clients slowed to 50 clients compared to Q1 2013. Our strategy is to continue to improve profitability by acquiring and managing fewer strategic clients at a higher ACVC. We believe that ACV is a better measure of quarterly sales activity.
Gross margin declined to 82% in Q2 2013 as expected compared to 85% last year. We are investing in content for the Vendor Center release planned in October this year, which contributed to the decline in gross margin. Gross margin typically declines slightly prior to major product releases because new product revenue has not yet offset the incremental content investment. Due to the Company’s small size, incremental investments can have a noticeable impact on results.
Operating expenses in the second quarter of 2013 are flat compared to Q2 2012. In Q4 2012, we increased investment in the SMB sales channel, expanding the sales force by 40%. The incremental investment negatively impacted quarterly EBITDA and net income, but due to lower than expected variable sales costs the impact was less than planned. When fully ramped, we expect the investment in SMB to increase ongoing sales and marketing costs by $750,000 annually compared to the pre-investment period.
Adjusted EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization, and non-cash stock-based compensation) for the quarter decreased to $726,000, compared to Adjusted EBITDA of $846,000 in the same year-ago period. Net loss was $88,000 or $(0.01) cents per diluted share, compared to net income of $72,000 or $0.01 cents per diluted share in the second quarter of 2012.
At June 30, 2013, cash, cash equivalents and investments decreased by $4.5 million to $7.8 million compared to the end of 2012. On April 4, 2013, Onvia repurchased 1.2 million shares of its outstanding common stock from a third party at $3.50 per share. As a result of the stock repurchase, cash on hand was reduced by $4.4 million. We believe that the remaining cash balance is adequate to fund operations until Adjusted EBITDA and free cash flow accelerate in the future.
Source: Onvia Press Release