On 16 July 2013, Ancestry.com filed a Form S-4/A Registration Statement with the Securities and Exchange Commission along with a Prospectus for and Exchange Offer for $300,000,000 11.00% Senior Notes due 2020. Visit Ancestry’s SEC Filings page for to download the document and other filing documents.
So what’s the big deal and why is this important to you as a genealogist? Well, if you follow the genealogy market as I do, it is one way to find out information such as membership numbers, trends, areas of growth (and decline), etc. Also, as a genealogist, this is an example of how you can look to corporate records, if they exist, for companies owned by your ancestors or which somehow relate to how they worked and lived.
A Little Background
In a previous work life, your host here at Hack Genealogy worked for large corporate law firms as a document processor and night paralegal as well as a proofreader. I specialized in formatting and editing complex SEC forms such as registration statements and prospectuses (prospecti?).
While this was over 15 years ago, the structure of such documents remains much the same and I know where to look for information. The findings can be important to market research especially when dealing with companies such as Ancestry.com which dominates the genealogy industry.
The Insights from Ancestry’s S-4: Summary
Here are the more interesting “take away” points from my review of the document:
- Subscribers: Ancestry.com had 2.1 million subscribers as of 31 March 2013; 2.7 million subscribers as of the same date if you include all “branded properties” such as fold3.com, archives.com, etc.
- Records: Over 11 billion digitized records across the Ancestry.com properties.
- User Content: Ancestry users have uploaded over 163 million items such as photos and scanned documents. As of 31 March 2013, there were 47 million family trees with over 5 billion profiles.
- Hints: There were over 1.3 billion hints for Ancestry.com users in 2012 alone.
- Revenue: Revenue growth has gone from $197 million in 2008 to $487 million in 2012 at a compound annual growth rate of 25.3%.
- Competitors: Ancestry.com sees its competitors as FamilySearch, other commercial entities as well as non-profit groups such as genealogy societies and governmental entites providing records access.
- Privacy: Why an interest in Ancestry.com and genealogy might decline include “public concern regarding privacy and data security.”
- Staffing: Employee headcount at Ancestry increased by 23% in 2013.
- Servers and Backups: Ancestry.com systems are not completely redundant: “Our systems are not completely redundant, so a failure of our system at our primary site could result in reduced functionality for our customers, and a total failure of our systems at both sites could cause our Web sites to be inaccessible by our customers.”
- International Users: Approximately 25% of Ancestry.com subscribers are from locations outside the United States.
- Who Do You Think You Are?: Ancestry does not expect the same impact in terms of increased business, subscribers and revenue from the new season of WDYTYA on TLC as it had seen in previous seasons of the show.
- Debt: Ancestry’s debt is $968.3 million as of March 31, 2013.
The Insights from Ancestry’s S-4: Detailed Notes
Here are my notes without any editorializing along with page references:
- 2.1M subscribers as of 31 March 2013; 2.7 across all branded sites such as Fold3 and Archives.com.
- Over 11B historical records digitized.
- “We have developed and acquired efficient and proprietary systems for digitizing handwritten historical documents, and we have established relationships with national, state and local government archives, historical societies, religious institutions and private collectors of historical content around the world.”
- “Ancestry.com users have uploaded over 163 million items, such as photographs, scanned documents and written stories.”
- As of March 31, 2013, approximately 75% of our subscribers had subscription durations greater than one month.
- Subscriber “discoveries” – In 2012, over 1.3 billion hints were accepted by our subscribers compared to the approximately 700 million hints accepted in 2011. The increase in hints accepted is a product of subscriber growth, new content, enhanced hinting technologies and changes to how hints are served to subscribers.
- Family trees – As of March 31, 2013, our users had created more than 47 million family trees containing over 5 billion profiles.
- Ancestry.com went private for approximately $1.5 billion on December 28, 2012.
- Total subscribers to Ancestry.com branded Web sites increased to approximately 2.0 million or 18% compared to December 31, 2011.
- Total revenues increased to $487.1 million or 22% for the combined period December 29, 2012 to December 31, 2012 and January 1, 2012 to December 28, 2012 compared to the year ended December 31, 2011.
- Added over 3.1 billion records to content collections.
- Subscriber vs. registered user: Subscriber pays for renewable access or redeems a gift subscription to our Ancestry.com Web sites; Registered User has registered on our Ancestry.com Web sites or mobile apps which includes subscribers.
- Our revenues have grown rapidly, increasing from $197.6 million in 2008 to $487.1 million for the combined period December 29, 2012 to December 31, 2012 and January 1, 2012 to December 28, 2012, representing a compound annual growth rate of 25.3%.
- FamilySearch, and its Web site FamilySearch.org, a genealogy organization that is part of The Church of Jesus Christ of Latter-day Saints. FamilySearch has an extensive collection of paper and microfilm records. FamilySearch has digitized a large quantity of these records and has published them online at FamilySearch.org, where it makes them available to the public for free and through thousands of family history centers located throughout the world. FamilySearch is a well-funded organization and is undertaking a large-scale digitization project to make its collection available online. FamilySearch has partnered and may in the future partner with other commercial entities to broaden the distribution of its records.
- Commercial entities, including online genealogical research services, library content distributors, search engines and portals, retailers of books and software related to genealogical research and family tree creation and family history oriented social networking Web sites.
- Non-profit entities and organizations, genealogical societies, governments and agencies that may make vital statistics or other records available to the public for free or that partner with commercial entities to make their records widely-available.
Factors that could lead to a decline in consumption of Ancestry.com services (and genealogical services in general):
- individuals’ interest in, and their willingness to spend time and money, conducting family history research;
- availability of discretionary funds;
- awareness of our brand and the family history category;
- the appeal, reliability and performance of our services;
- the price, performance and availability of competing family history products and services;
- public concern regarding privacy and data security;
- our ability to maintain high levels of customer satisfaction; and
- the rate of growth in online commerce generally.
Privacy issues and impact on growth:
- These problems often pose particular challenges in acquiring content internationally. Desirable content may not be available to us on favorable terms, or at all, due to competition for a particular collection, privacy concerns relative to information contained in a given collection or our lack of negotiating leverage with a certain content provider. For example, some of our most popular databases include “vital records” content—namely, historical birth, marriage and death records—made available by certain governmental agencies. To help prevent identity theft, or even terrorist activities, governments may attempt to restrict the release of all or substantial portions of their vital records content, and particularly birth records, to third parties. If these efforts are successful, it may limit or altogether prevent us from acquiring these types of vital record content or continuing to make them available online. In some cases, we have had to lobby for legislation to be changed or otherwise work to surmount administrative or other bureaucratic hurdles to enable government or other bodies to grant us access to records.
- While we own or license most of the images in our database, we generally do not own the underlying historical documents. If owners of content have sold or licensed the rights to digitize that content, even on a non-exclusive basis, they may elect not to sell or license it for digitization purposes to any other person. Therefore, if one of our competitors acquires rights to digitize a set of content, even on a non-exclusive basis, we may be unable to acquire rights to digitize that content. Conversely, the owners of historical records may allow more than one party to digitize those records and our competitors may digitize and make available the same content that we offer. In some cases, acquisition of content involves competitive bidding, and we may choose not to bid or may not successfully bid to acquire content rights. In addition, a number of governmental bodies and other organizations are interested in making historical content available for free and owners of historical records may license or sell their records to such governmental bodies and organizations in addition to or instead of licensing or selling their content to us. Our inability to offer certain vital records or other valuable content as part of our family history research databases or the widespread availability of such content elsewhere at lower cost or for free could result in our subscription services becoming less valuable to consumers, which could have a material adverse impact on our number of subscribers, and therefore on our business, financial condition and results of operations.
Ancestry.com has some “finite” licenses on content and they may not be able to renew these licenses
- We depend in part upon third party licenses for some of our historical content, and a loss of these licenses, or disputes regarding royalties under these licenses, could adversely affect our ability to retain and expand our subscriber base, and therefore could materially affect our revenues, financial condition and results of operations.
- We currently outsource some of our customer service, DNA testing services and product development activities to third parties, which exposes us to significant risks if these parties fail to perform under our agreements with them.
- Our full-time employee headcount, excluding subscriber service employees, increased approximately 23% in for the period from January 1, 2012 to December 28, 2012.
Servers and Technology
- Substantially all of our communications, network and computer hardware used to operate our Web sites are co-located in a facility in Salt Lake City, Utah. We do not own or control the operation of this facility. We have established a disaster recovery facility located at a third-party facility in Denver, Colorado.
- Our systems are not completely redundant, so a failure of our system at our primary site could result in reduced functionality for our customers, and a total failure of our systems at both sites could cause our Web sites to be inaccessible by our customers.
- As of March 31, 2013, approximately 29% of subscribers to our Ancestry.com Web sites and for the three months ended March 31, 2013, approximately 24% of our subscription revenues were from locations outside the United States.
Brand Loyalty, Auto-Renewals and Customer Service
- Additionally, from time to time, our subscribers express dissatisfaction with our service, including, among other things, dissatisfaction with our auto-renewal and other billing policies, our handling of personal data and the way our services operate. To the extent that dissatisfaction with our service is widespread or not adequately addressed, our brand may be adversely impacted.
Impact of blogging community
- Many of our subscribers are passionate about family history research, and many of these subscribers participate in blogs on this topic both on our Web sites and elsewhere. If actions we take or changes we make to our products upset these subscribers, their blogging could negatively affect our brand and reputation, which could have a material adverse effect on our revenues, results of operations and financial condition.
- Our mobile apps are becoming an increasingly important way for new users to register or subscribe. Most mobile apps are downloaded from various service providers that do not currently charge us fees or commissions.
WDYTYA Season 4
- We recently announced that we are purchasing product integration in a new season of the television show, “Who Do You Think You Are?,” which is expected to air in the United States on TLC beginning in July 2013. We previously purchased product integration in all three seasons of the “Who Do You Think You Are?” series that aired on NBC. The airing of the three seasons of this series in 2010-2012, together with our increased television advertising, caused increased interest in our core business that resulted in a greater number of subscribers. We do not expect that the new season of the show will have a similar effect on our business.
Collaboration and Shared Content
- We have substantial debt, totaling approximately $968.3 million as of March 31, 2013, and as a result, we have significant debt service obligations. We also have the ability to borrow up to $50.0 million under the Revolving Facility.
Intellectual Property – User Access Agreement
- Our future success and competitive position depend in part on our ability to protect our proprietary technologies and intellectual property. We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as on the protections afforded by trademark, copyright, patent and trade secret law, to protect our proprietary technologies and intellectual property. Because certain of our trademarks contain words or terms that have a common usage, we may have difficulty registering them in certain jurisdictions. Although we possess intellectual property rights in some aspects of our digital content, search technology, software products and digitization and indexing processes, our digital content is not protected by any registered copyrights or other registered intellectual property or statutory rights. Rather, our digital content is protected by user agreements that limit access to and use of our data, as well as by certain proprietary and nonproprietary technology and software. However, compliance with the use restrictions is difficult to monitor, and any technology or software that we deploy to protect our digital content may prove to be inadequate for such purpose. In addition, our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.
- Subscription revenues from our Ancestry.com Web sites accounted for approximately 92% of total subscription revenues for the three months ended March 31, 2013 and 95% of the total subscription revenues for both the periods from December 29, 2012 to December 31, 2012 and from January 1, 2012 to December 28, 2012. Total subscription revenues also include subscriptions to our other Web sites, such as Archives.com and Fold3.com.
- For the three months ended March 31, 2013, our subscription revenues increased $11.2 million compared to the three months ended March 31, 2012. The increase was primarily the result of an increase in the number of total subscribers from continued marketing efforts and subscription revenues of $5.1 million for Archives.com, which we acquired in August 2012.
Product and Other Revenues
- For the three months ended March 31, 2013, our product and other revenues increased $3.8 million compared to the three months ended March 31, 2012 primarily due to an increase in AncestryDNA service revenue driven by the launch of our new product in May 2012.
Cost of subscription revenues
- For the three months ended March 31, 2013, our cost of subscription revenues increased $5.4 million compared to the three months ended March 31, 2012. The increase was primarily due to a $4.0 million increase in content database amortization due to the recognition of content at fair value as a part of purchase accounting for the Transaction. Additionally, personnel-related expenses increased $1.2 million resulting from a 26% increase in the average number of web hosting and subscriber services personnel during the three months ended March 31, 2013 compared to the three months ended March 31, 2012.
Cost of product and other revenues
- For the three months ended March 31, 2013, our cost of product and other revenues increased $2.9 million compared to the three months ended March 31, 2012. The increase was primarily due to costs associated with our AncestryDNA service.
©2013, copyright Thomas MacEntee