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EX-32.1 - EX-32.1 - TechTarget Incttgt-ex321_7.htm
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EX-10.3 - EX-10.3 - TechTarget Incttgt-ex103_78.htm
EX-10.2 - EX-10.2 - TechTarget Incttgt-ex102_79.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2017

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: 1-33472

 

 

 

TECHTARGET, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

04-3483216

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

275 Grove Street Newton, Massachusetts

02466

(Address of principal executive offices)

(zip code)

 

Registrant’s telephone number, including area code: (617) 431-9200

(Former name, former address and formal fiscal year, if changed since last report): Not applicable

 

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 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of July 31, 2017, the registrant had 27,401,512 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

Item

 

 

 

Page

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016

 

3

 

 

Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016

 

4

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

 

5

 

 

Notes to 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

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 3.

 

Defaults upon Senior Securities

 

32

Item 4.

 

Mine Safety Disclosures

 

32

Item 5.

 

Other Information

 

32

Item 6.

 

Exhibits

 

32

 

 

Signatures

 

33

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TECHTARGET, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

June 30,

2017

 

 

December 31,

2016

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,440

 

 

$

18,485

 

Short-term investments

 

 

11,082

 

 

 

10,988

 

Accounts receivable, net of allowance for doubtful accounts of $1,507 and $1,961 as

   of June 30, 2017 and December 31, 2016, respectively

 

 

24,080

 

 

 

22,551

 

Prepaid taxes

 

 

2,884

 

 

 

3,961

 

Prepaid expenses and other current assets

 

 

2,291

 

 

 

1,952

 

Total current assets

 

 

61,777

 

 

 

57,937

 

Property and equipment, net

 

 

9,010

 

 

 

9,232

 

Long-term investments

 

 

4,075

 

 

 

7,801

 

Goodwill

 

 

93,628

 

 

 

93,469

 

Intangible assets, net

 

 

567

 

 

 

601

 

Deferred tax assets

 

 

408

 

 

 

139

 

Other assets

 

 

876

 

 

 

898

 

Total assets

 

$

170,341

 

 

$

170,077

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,430

 

 

$

2,100

 

Current portion of term loan

 

 

8,638

 

 

 

6,157

 

Accrued expenses and other current liabilities

 

 

2,204

 

 

 

2,792

 

Accrued compensation expenses

 

 

942

 

 

 

698

 

Income taxes payable

 

 

28

 

 

 

122

 

Deferred revenue

 

 

7,800

 

 

 

6,079

 

Total current liabilities

 

 

21,042

 

 

 

17,948

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term portion of term loan

 

 

27,283

 

 

 

32,286

 

Deferred rent

 

 

1,872

 

 

 

2,080

 

Deferred tax liabilities

 

 

218

 

 

 

200

 

Total liabilities

 

 

50,415

 

 

 

52,514

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value per share, 100,000,000 shares authorized,

   52,770,121 shares issued and 27,421,162 shares outstanding at June 30, 2017 and

   52,601,284 shares issued and 27,495,539 shares outstanding at December 31, 2016

 

 

53

 

 

 

52

 

Treasury stock, 25,348,959 shares at June 30, 2017 and 25,105,745 shares at

   December 31, 2016, at cost

 

 

(164,876

)

 

 

(162,731

)

Additional paid-in capital

 

 

299,610

 

 

 

296,853

 

Accumulated other comprehensive loss

 

 

(72

)

 

 

(248

)

Accumulated deficit

 

 

(14,789

)

 

 

(16,363

)

Total stockholders’ equity

 

 

119,926

 

 

 

117,563

 

Total liabilities and stockholders’ equity

 

$

170,341

 

 

$

170,077

 

 

See accompanying Notes to Consolidated Financial Statements.

3


 

TechTarget, Inc.

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

26,664

 

 

$

27,726

 

 

$

50,073

 

 

$

51,995

 

Events

 

 

 

 

 

1,448

 

 

 

168

 

 

 

2,210

 

Total revenues

 

 

26,664

 

 

 

29,174

 

 

 

50,241

 

 

 

54,205

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online(1)

 

 

7,085

 

 

 

6,813

 

 

 

13,980

 

 

 

13,471

 

Events

 

 

 

 

 

791

 

 

 

41

 

 

 

1,326

 

Total cost of revenues

 

 

7,085

 

 

 

7,604

 

 

 

14,021

 

 

 

14,797

 

Gross profit

 

 

19,579

 

 

 

21,570

 

 

 

36,220

 

 

 

39,408

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing(1)

 

 

10,745

 

 

 

11,028

 

 

 

21,438

 

 

 

22,088

 

Product development(1)

 

 

2,016

 

 

 

1,945

 

 

 

3,959

 

 

 

3,953

 

General and administrative(1)

 

 

3,198

 

 

 

3,044

 

 

 

6,254

 

 

 

6,254

 

Depreciation

 

 

1,093

 

 

 

1,016

 

 

 

2,184

 

 

 

2,036

 

Amortization of intangible assets

 

 

42

 

 

 

233

 

 

 

82

 

 

 

535

 

Total operating expenses

 

 

17,094

 

 

 

17,266

 

 

 

33,917

 

 

 

34,866

 

Operating income

 

 

2,485

 

 

 

4,304

 

 

 

2,303

 

 

 

4,542

 

Interest and other expense, net

 

 

(94

)

 

 

(508

)

 

 

(257

)

 

 

(566

)

Income before provision for income taxes

 

 

2,391

 

 

 

3,796

 

 

 

2,046

 

 

 

3,976

 

Provision for income taxes

 

 

1,030

 

 

 

1,397

 

 

 

714

 

 

 

1,625

 

Net income

 

$

1,361

 

 

$

2,399

 

 

$

1,332

 

 

$

2,351

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investments (net of tax provision of

   $0, $3, $8, and $15, respectively)

 

$

(1

)

 

$

5

 

 

$

14

 

 

$

27

 

Foreign currency translation gain (loss)

 

 

140

 

 

 

(67

)

 

 

162

 

 

 

99

 

Other comprehensive income (loss)

 

 

139

 

 

 

(62

)

 

 

176

 

 

 

126

 

Comprehensive income

 

$

1,500

 

 

$

2,337

 

 

$

1,508

 

 

$

2,477

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

0.08

 

 

$

0.05

 

 

$

0.07

 

Diluted

 

$

0.05

 

 

$

0.07

 

 

$

0.05

 

 

$

0.07

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,477

 

 

 

31,817

 

 

 

27,505

 

 

 

32,205

 

Diluted

 

 

28,333

 

 

 

32,938

 

 

 

28,261

 

 

 

32,249

 

 

(1)

Amounts include stock-based compensation expense as follows:

 

Cost of online revenues

 

$

12

 

 

$

27

 

 

$

24

 

 

$

54

 

Selling and marketing

 

 

927

 

 

 

921

 

 

 

1,877

 

 

 

1,843

 

Product development

 

 

41

 

 

 

43

 

 

 

75

 

 

 

79

 

General and administrative

 

 

609

 

 

 

485

 

 

 

1,207

 

 

 

1,050

 

 

See accompanying Notes to Consolidated Financial Statements.

4


 

TechTarget, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,332

 

 

$

2,351

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,266

 

 

 

2,571

 

Provision for bad debt

 

 

405

 

 

 

409

 

Amortization of investment premiums

 

 

154

 

 

 

138

 

Stock-based compensation

 

 

3,183

 

 

 

3,026

 

Amortization of debt issuance costs

 

 

53

 

 

 

13

 

Deferred tax provision

 

 

 

 

 

(251

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,934

)

 

 

(3,886

)

Prepaid taxes, prepaid expenses and other current assets

 

 

(315

)

 

 

(470

)

Other assets

 

 

40

 

 

 

33

 

Accounts payable

 

 

(672

)

 

 

1

 

Income taxes payable

 

 

947

 

 

 

1,339

 

Accrued expenses and other current liabilities

 

 

(643

)

 

 

(622

)

Accrued compensation expenses

 

 

230

 

 

 

25

 

Deferred revenue

 

 

1,722

 

 

 

3,632

 

Other liabilities

 

 

(210

)

 

 

105

 

Net cash provided by operating activities

 

 

6,558

 

 

 

8,414

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment, and other capitalized assets

 

 

(1,952

)

 

 

(2,648

)

Purchases of investments

 

 

(500

)

 

 

 

Proceeds from sales and maturities of investments

 

 

4,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

1,548

 

 

 

(2,648

)

Financing activities:

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements

 

 

(752

)

 

 

(1,149

)

Purchase of treasury shares and related costs

 

 

(2,145

)

 

 

(41,181

)

Payment of earnout liabilities

 

 

 

 

 

(459

)

Proceeds from exercise of stock options

 

 

326

 

 

 

1,105

 

Debt issuance costs

 

 

(50

)

 

 

(367

)

Term loan proceeds

 

 

 

 

 

50,000

 

Term loan principal payment

 

 

(2,500

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(5,121

)

 

 

7,949

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(30

)

 

 

156

 

Net increase in cash and cash equivalents

 

 

2,955

 

 

 

13,871

 

Cash and cash equivalents at beginning of period

 

 

18,485

 

 

 

14,783

 

Cash and cash equivalents at end of period

 

$

21,440

 

 

$

28,654

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash (refunded from) paid for taxes, net

 

$

(231

)

 

$

537

 

 

See accompanying Notes to Consolidated Financial Statements.

5


 

TECHTARGET, INC.

Notes to Consolidated Financial Statements

(In thousands, except share and per share data, where otherwise noted, or instances where expressed in millions)

1. Organization and Operations

TechTarget, Inc. and its subsidiaries (the “Company”) is a leading provider of specialized online content for buyers of enterprise information technology (“IT”) products and services, and a leading provider of purchase-intent marketing and sales services for enterprise technology vendors. The Company’s service offerings enable technology vendors to better identify, reach, and influence corporate IT decision makers actively researching specific IT purchases. The Company improves vendors’ ability to impact these audiences for business growth using advanced targeting, analytics, and data services complemented with customized marketing programs that integrate demand generation and brand advertising techniques. The Company operates a network of over 140 websites, each of which focuses on a specific IT sector such as storage, security, or networking. IT professionals have become increasingly specialized, and they have come to rely on the Company’s sector-specific websites for purchasing decision support. The Company’s content platform enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. At critical stages of the purchase decision process, these content offerings, through different channels, meet IT professionals’ needs for expert, peer, and IT vendor information and provide a platform on which IT vendors can launch targeted marketing campaigns which generate measurable return on investment. Based upon the logical clustering of users’ respective job responsibilities and the marketing focus of the products being promoted by the Company’s customers, the Company categorizes its content offerings to address the key market opportunities and audience extensions across a portfolio of distinct media groups: Security; Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; Channel; and TechnologyGuide.com.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these Notes to Consolidated Financial Statements. The Company’s critical accounting policies are those that affect its more significant judgments used in the preparation of its consolidated financial statements. A description of the Company’s critical accounting policies and estimates is contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Other than those noted in the “Accounting Guidance Adopted in 2017” section below, there were no material changes to the Company’s critical accounting policies and use of estimates during the first six months of 2017.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, TechTarget Securities Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited (“TTGT HK”), TechTarget (Beijing) Information Technology Consulting Co. Ltd. (“TTGT Consulting”), TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS (“LeMagIT”) and TechTarget Germany GmbH. TSC is a Massachusetts corporation. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TTGT HK is a subsidiary incorporated in Hong Kong in order to facilitate the Company’s activities in the Asia-Pacific region. Additionally, through its wholly-owned subsidiaries, TTGT HK and TTGT Consulting, the Company effectively controls a variable interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which was incorporated under the laws of the People’s Republic of China (“PRC”). TechTarget (Australia) Pty Ltd. and TechTarget (Singapore) Pte Ltd. are the entities through which the Company does business in Australia and Singapore, respectively; LeMagIT and TechTarget Germany GmbH, both wholly-owned subsidiaries of TechTarget Limited, are entities through which the Company does business in France and Germany, respectively. Bitpipe, Inc., previously a wholly-owned subsidiary, was merged into TechTarget, Inc. in the second quarter of 2016.

PRC laws and regulations prohibit or restrict foreign ownership of Internet-related services and advertising businesses. To comply with these foreign ownership restrictions, the Company operates its websites and provides online advertising services in the PRC through KWIT. The Company entered into certain exclusive agreements with KWIT and its shareholders through TTGT HK, which obligated TTGT HK to absorb all of the risk of loss from KWIT’s activities and entitled TTGT HK to receive all of its residual returns. In addition, the Company entered into certain agreements with the authorized parties through TTGT HK, including Management and Consulting Services, Voting Proxy, Equity Pledge and Option Agreements. TTGT HK assigned all of its rights and obligations to the newly formed wholly foreign-owned enterprise (“WFOE”), TTGT Consulting. TTGT Consulting is established and existing under the laws of the PRC, and is wholly-owned by TTGT HK.

Based on these contractual arrangements, the Company consolidates the financial results of KWIT as required by Accounting Standards Codification (“ASC”) 810-10, Consolidation: Overall, because the Company holds all the variable interests of KWIT through TTGT Consulting, which is the primary beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a

6


 

parent-subsidiary relationship between the Company and the VIE through the aforementioned agreements, whereby the equity holders of KWIT assigned all of their voting rights underlying their equity interest in KWIT to TTGT Consulting. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of KWIT. All significant intercompany accounts and transactions between the Company, its subsidiaries, and KWIT have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted (Generally Accepted Accounting Principles or GAAP) in the United States (“U.S.”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of results to be expected for any other interim periods or for the full year. The information included in these consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Reclassifications

The adoption of a recent accounting pronouncement, described in more detail in the Accounting Guidance Adopted in 2017 section below, resulted in an in immaterial adjustment to the Accumulated Deficit in the prior period Consolidated Balance Sheet and an immaterial reclassification between Operating Activities and Financing Activities in the prior period Consolidated Statement of Cash Flows. There was no effect on the Consolidated Statement of Operations and Comprehensive Income.

There were no reclassifications out of accumulated other comprehensive income in the periods ended June 30, 2017 or 2016.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenues, long-lived assets, goodwill, the allowance for doubtful accounts, stock-based compensation, earnouts, self-insurance accruals, and income taxes. The Company reduces its accounts receivable for an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses. Estimates of the carrying value of certain assets and liabilities are based on historical experience and on various other assumptions that the Company believes to be reasonable. Actual results could differ from those estimates.

 

Recent Accounting Pronouncements

Accounting Guidance Adopted in 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted the provisions of the new standard on January 1, 2017. Implementing the new pronouncement resulted in the Company recognizing tax benefits and tax deficiencies related to stock compensation deductions as a component of the provision for income tax expense in the reporting period in which they occur. Additionally, the Company has applied the modified retrospective adoption approach, which resulted in the Company recording deferred tax assets of approximately $0.2 million with an offsetting entry to retained earnings. ASU 2016-09 also requires the presentation of excess tax benefit from stock options as an operating activity on the consolidated statement of cash flows instead of as a financing activity, which resulted in an immaterial reclassification in the consolidated statement of cash flows for the first half of 2016.  

7


 

Accounting Guidance Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted only as of annual reporting periods (including interim reporting periods within those reporting periods) beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. In April and May 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, respectively, each of which provide further implementation guidance for ASU 2014-09. The Company is continuing to identify any necessary changes to its systems, processes, and internal controls to meet the standard’s reporting and disclosure requirements. Based upon evaluations to date, the Company does not anticipate any significant system, process, or internal control changes. The Company continues to assess all potential impacts of the standard.

The Company is currently in the process of assessing the adoption methodology, which allows the standard to be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial application. The Company continues to progress in its evaluation of the impact of the adoption of the standard on other areas of its consolidated financial statements but has not yet determined whether the effect will be material to either its reported revenue or its accounting for deferred commissions balances.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosures. However, the Company anticipates that this standard will have a material impact on its financial position, primarily due to office space operating leases, for which the Company will be required to recognize lease assets and lease liabilities on its Consolidated Balance Sheets. The Company will continue to assess the potential impacts of this standard, including the impact the adoption of this guidance will have on its results of operations or cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (step 2 of the goodwill impairment test) and instead requires only a one-step quantitative impairment test, performed by comparing the fair value of goodwill with its carrying amount. ASU 2017-04 is effective on a prospective basis effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

3. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term and long-term investments and contingent consideration. The fair value of these financial assets and liabilities was determined based on three levels of input as follows: 

 

Level 1. Quoted prices in active markets for identical assets and liabilities;

 

Level 2. Observable inputs other than quoted prices in active markets; and

 

Level 3. Unobservable inputs.

8


 

The fair value hierarchy of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

June 30,

2017

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

49

 

 

$

49

 

 

$

 

 

$

 

Short-term investments(2)

 

 

11,082

 

 

 

 

 

 

11,082

 

 

 

 

Long-term investments(2)

 

 

4,075

 

 

 

 

 

 

4,075

 

 

 

 

Total assets

 

$

15,206

 

 

$

49

 

 

$

15,157

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

December 31, 2016

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

4,301

 

 

$

4,301

 

 

$

 

 

$

 

Short-term investments(2)

 

 

10,988

 

 

 

 

 

 

10,988

 

 

 

 

Long-term investments(2)

 

 

7,801

 

 

 

 

 

 

7,801

 

 

 

 

Total assets

 

$

23,090

 

 

$

4,301

 

 

$

18,789

 

 

$

 

 

(1)

Included in cash and cash equivalents on the accompanying Consolidated Balance Sheets; valued at quoted market prices in active markets.

(2)

Short-term and long-term investments consist of municipal bonds, corporate bonds, U.S. Treasury securities, and government agency bonds; their fair value is calculated using an interest rate yield curve for similar instruments. 

4. Cash, Cash Equivalents, and Investments  

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Cash equivalents are carried at cost, which approximates their fair market value. Cash and cash equivalents consisted of the following:

 

 

 

June 30,

2017

 

 

December 31,

2016

 

Cash

 

$

21,391

 

 

$

14,184

 

Money market funds

 

 

49

 

 

 

4,301

 

Total cash and cash equivalents

 

$

21,440

 

 

$

18,485

 

 

9


 

The Company’s short-term and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders’ equity, net of tax. The cumulative unrealized loss, net of taxes, was $16 and $30 as of June 30, 2017 and December 31, 2016, respectively. Realized gains and losses on the sale of these investments are determined using the specific identification method. There were no realized gains or losses during the three or six months ended June 30, 2017 or 2016.

Short-term and long-term investments consisted of the following:

 

 

 

June 30, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,998

 

 

$

 

 

$

(4

)

 

$

1,994

 

Government agency bonds

 

 

2,507

 

 

 

 

 

 

(4

)

 

 

2,503

 

Municipal bonds

 

 

8,673

 

 

 

 

 

 

(14

)

 

 

8,659

 

Corporate bonds

 

 

2,004

 

 

 

 

 

 

(3

)

 

 

2,001

 

Total short-term and long-term investments

 

$

15,182

 

 

$

 

 

$

(25

)

 

$

15,157

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,998

 

 

$

 

 

$

(1

)

 

$

1,997

 

Government agency bonds

 

 

5,012

 

 

 

1

 

 

 

(2

)

 

 

5,011

 

Municipal bonds

 

 

9,817

 

 

 

 

 

 

(42

)

 

 

9,775

 

Corporate bonds

 

 

2,009

 

 

 

 

 

 

(3

)

 

 

2,006

 

Total short-term and long-term investments

 

$

18,836

 

 

$

1

 

 

$

(48

)

 

$

18,789

 

 

The Company had twenty three debt securities in an unrealized loss position at June 30, 2017. All of these securities have been in such a position for no more than eleven months. The unrealized loss on those securities was approximately $25 and the fair value was $13.7 million. At December 31, 2016, the Company had twenty one debt securities in an unrealized loss position, and the unrealized loss on those securities was approximately $48 and the fair value was $13.8 million at that date. The Company uses specific identification when reviewing these investments for impairment. Because the Company does not intend to sell the investments that are in an unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their cost basis, the Company does not consider those investments with an unrealized loss to be other-than-temporarily impaired at June 30, 2017.

The Company’s investments have contractual maturity dates that range from July 2017 to January 2019. All income generated from these investments is recorded as interest income.

5. Goodwill and Intangible Assets

The following table summarizes the Company’s intangible assets, net:

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5–9

 

 

$

6,883

 

 

$

(6,873

)

 

$

10

 

Developed websites, technology and patents

 

 

10

 

 

 

1,279

 

 

 

(817

)

 

 

462

 

Trademark, trade name and domain name

 

5–8

 

 

 

1,781

 

 

 

(1,700

)

 

 

81

 

Proprietary user information database and Internet traffic

 

 

5

 

 

 

1,178

 

 

 

(1,164

)

 

 

14

 

Total intangible assets

 

 

 

 

 

$

11,121

 

 

$

(10,554

)

 

$

567

 

10


 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5–9

 

 

$

6,826

 

 

$

(6,807

)

 

$

19

 

Developed websites, technology and patents

 

 

10

 

 

 

1,178

 

 

 

(705

)

 

 

473

 

Trademark, trade name and domain name

 

5–8

 

 

 

1,749

 

 

 

(1,664

)

 

 

85

 

Proprietary user information database and Internet traffic

 

 

5

 

 

 

1,146

 

 

 

(1,122

)

 

 

24

 

Total intangible assets

 

 

 

 

 

$

10,899

 

 

$

(10,298

)

 

$

601

 

 

Intangible assets are amortized over their estimated useful lives, which range from five to ten years, using methods of amortization that are expected to reflect the estimated pattern of economic use. The remaining amortization expense will be recognized over a weighted-average period of approximately 3.11 years. Amortization expense was $0.1 million and $0.5 million for the six months ended June 30, 2017 and 2016, respectively. Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets which generate website traffic that the Company considers to be in support of selling and marketing activities. The Company did not write off any fully amortized intangible assets in the first six months of 2017. The change in the gross carrying amount of intangible assets during the six months ended June 30, 2017 was due to foreign currency translation gains and losses.

The Company expects amortization expense of intangible assets to be as follows:

 

Years Ending December 31:

 

Amortization

Expense

 

2017 (July 1 – December 31)

 

$

84

 

2018

 

 

106

 

2019

 

 

89

 

2020

 

 

75

 

2021

 

 

91

 

Thereafter

 

 

122

 

 

 

$

567

 

 

Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. The Company did not have any intangible assets other than goodwill with indefinite lives as of June 30, 2017 or December 31, 2016. There were no indications of impairment as of June 30, 2017, and the Company believes that, as of the balance sheet dates presented, none of the Company’s goodwill or intangible assets was impaired.

11


 

6. Net Income Per Common Share

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per common share is as follows:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,361

 

 

$

2,399

 

 

$

1,332

 

 

$

2,351

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding

 

 

27,476,869

 

 

 

31,816,772

 

 

 

27,504,573

 

 

 

32,205,418

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding

 

 

27,476,869

 

 

 

31,816,772

 

 

 

27,504,573

 

 

 

32,205,418

 

     Effect of potentially dilutive shares (1)

 

 

856,510

 

 

 

1,121,671

 

 

 

756,471

 

 

 

1,043,180

 

Total weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding and potentially

     dilutive shares

 

 

28,333,379

 

 

 

32,938,443

 

 

 

28,261,044

 

 

 

33,248,598

 

Net Income Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.05

 

 

$

0.08

 

 

$

0.05

 

 

$

0.07

 

Diluted net income per share

 

$

0.05

 

 

$

0.07

 

 

$

0.05

 

 

$

0.07

 

 

(1)

In calculating diluted net income per share, 0.3 million shares related to outstanding stock options and unvested, undelivered restricted stock units were excluded for each of the three and six months ended June 30, 2017 and 0.4 million shares related to outstanding stock options and unvested restricted stock units were excluded for each of the three and six months ended June 30, 2016, because including them would have been anti-dilutive.

7. Term Loan Agreement

On May 9, 2016, the Company entered into a Senior Secured Credit Facilities Credit Agreement for a term loan (the “Term Loan Agreement”). Under the Term Loan Agreement, the Company borrowed and received $50 million in aggregate principal amount pursuant to a five-year term loan (the “Term Loan”). The borrowings under the Term Loan Agreement are secured by a lien on substantially all of the assets of the Company, including a pledge of the stock of certain of its wholly-owned subsidiaries. As of June 30, 2017, the carrying amount of the Term Loan was $35.9 million.

At the Company’s option, the Term Loan Agreement bears interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50%. The applicable interest rate was 3.72% at June 30, 2017, representing LIBOR plus the applicable margin of 2.50%. Interest expense under the Term Loan Agreement was $0.7 million and $0.2 million during the six months ended June 30, 2017 and 2016, respectively. This includes non-cash interest expense of $53 and $13 for the six months ended June 30, 2017 and 2016, respectively, related to the amortization of deferred issuance costs. During the six months ended June 30, 2017, the Company made principal payments totaling $2.5 million.

The Term Loan Agreement requires us to maintain compliance with certain covenants, including leverage and fixed charge coverage ratio covenants. At June 30, 2017, the Company was in compliance with all covenants under the Term Loan Agreement.

12


 

8. Commitments and Contingencies

Operating Leases

The Company conducts its operations in leased office facilities under various noncancelable operating lease agreements that expire through December 2021. The Company leases approximately 110,000 square feet of office space in Newton, Massachusetts under three separate coterminous leases (the “Newton Leases”), which expire in February 2020. Certain of the Newton Leases contain rent concessions, which the Company is receiving over the life of the Newton Leases. 

Certain of the Company’s operating leases include lease incentives and escalating payment amounts and are renewable for varying periods. The Company is recognizing the related rent expense on a straight-line basis over the term of the lease, taking into account the lease incentives and escalating lease payments. Total rent expense under the Company’s leases was approximately $2.3 million and approximately $2.2 million for the six months ended June 30, 2017 and 2016, respectively.  

Future minimum lease payments under the Company’s noncancelable operating leases at June 30, 2017 are as follows:

 

Years Ending December 31:

 

Minimum Lease

Payments

 

2017 (July 1 – December 31)

 

$

2,400

 

2018

 

 

5,009

 

2019

 

 

4,941

 

2020

 

 

988

 

2021

 

 

406

 

 

 

$

13,744

 

 

Litigation

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At June 30, 2017 and December 31, 2016, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

9. Stock-Based Compensation  

Stock Option Plans

In September 1999, the Company approved a stock option plan (the “1999 Plan”) that provided for the issuance of shares of common stock incentives. The 1999 Plan provided for the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock grants. These incentives were offered to the Company’s employees, officers, directors, consultants, and advisors. Each option is exercisable at such times and subject to such terms as determined by the Company’s Board of Directors (the “Board”); grants generally vest over a four year period, and expire no later than ten years after the grant date.

In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”), which was approved by the stockholders of the Company and became effective upon the consummation of the Company’s IPO in May 2007. Effective upon the consummation of the IPO, no further awards were made pursuant to the 1999 Plan, but any outstanding awards under the 1999 Plan remain in effect and continue to be subject to the terms of the 1999 Plan. The 2007 Plan allowed the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock units and other awards. Under the 2007 Plan, stock options could not be granted at less than fair market value on the date of grant, and grants generally vested over a three to four year period. Stock options granted under the 2007 Plan expire no later than ten years after the grant date. Additionally, beginning with awards made in August 2015, the Company had the option to direct a net issuance of shares for satisfaction of tax liability with respect to vesting of awards and delivery of shares. Prior to August 2015, this choice of settlement method was solely at the discretion of the award recipient.

The Company has reserved for issuance an aggregate of 2,911,667 shares of common stock under the 2007 Plan, which expired in May 2017. The 2007 Plan was subject to an automatic annual increase of shares on January 1 of each year, beginning on January 1, 2008, equal to the lesser of (a) 2% of the outstanding number of shares of common stock (on a fully-diluted basis) on the immediately preceding December 31 and (b) such lower number of shares as may be determined by the compensation committee of the Board. The number of shares available for issuance under the 2007 Plan was subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. Additionally, shares that were subject to stock options returned to the 1999 Plan as a result of their expiration, cancellation, or termination were automatically made available for issuance under the 2007 Plan. Approximately 8,224,334 shares were added to the 2007 Plan in accordance with the automatic annual increase and 1999 Plan return provisions. No new awards

13


 

may be granted under the 2007 Plan; however, the shares of common stock remaining in the 2007 Plan are available for issuance in connection with previously awarded grants under the 2007 Plan. There are 2,315,160 shares of common stock that remain outstanding under the 2007 Plan of June 30, 2017.

In March 2017, the Board approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”), which was approved by the stockholders of the Company at the 2017 Annual Meeting and became effective June 16, 2017. The 2017 Plan replaces the Company’s 2007 Plan. Approximately 3,000,000 shares of Common Stock are authorized for issuance under the 2017 Plan and, generally, shares that are forfeited or canceled from awards under the 2017 Plan also will be available for future awards. Under the 2017 Plan, the Company may grant restricted stock and restricted stock units, non-qualified stock options, stock appreciation rights, performance awards, and other stock-based and cash-based awards. Shares of stock issued pursuant to restricted stock awards are restricted in that they are not transferable until they vest. Stock underlying awards of restricted stock units are not issued until the units vest. Non-qualified stock options cannot be exercised until they vest. Under the 2017 Plan, all stock options and stock appreciation rights must be granted with an exercise price that is at least equal to the fair market value of the stock on the date of grant. The 2017 Plan broadly prohibits the repricing of options and stock appreciation rights without stockholder approval and requires that no dividends or dividend equivalents be paid with respect to options or stock appreciation rights. The 2017 Plan further provides that, in the event any dividends or dividend equivalents are declared with respect to restricted stock, restricted stock units, other stock-based awards and performance awards (referred to as “full-value awards”), they would be subject to the same vesting and forfeiture provisions as the underlying award. As of June 30, 2017, a total of 3,000,000 shares were available for grant under the 2017 Plan.

Accounting for Stock-Based Compensation

The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of an award.

The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period equal to the expected life of the option. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a zero coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture rate in determining the expense recorded in each period.

A summary of the stock option activity under the Company’s stock option plans for the six months ended June 30, 2017 is presented below:

 

Year-to-Date Activity

 

Options

Outstanding

 

 

Weighted-

Average

Exercise Price

Per Share

 

 

Weighted-

Average

Remaining

Contractual

Term in

Years

 

 

Aggregate

Intrinsic

Value

 

Options outstanding at December 31, 2016

 

 

861,380

 

 

$

9.42

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(59,923

)

 

 

5.45

 

 

 

 

 

 

$

235

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(104,087

)

 

 

13.47

 

 

 

 

 

 

 

 

 

Options outstanding at June 30, 2017

 

 

697,370

 

 

$

9.16

 

 

 

1.99

 

 

$

1,886

 

Options exercisable at June 30, 2017

 

 

697,370

 

 

$

9.16

 

 

 

1.99

 

 

$

1,886

 

Options vested or expected to vest at June 30, 2017

 

 

697,370

 

 

$

9.16

 

 

 

1.99

 

 

$

1,886

 

 

During the six months ended June 30, 2017, the total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $0.2 million. During the six months ended June 30, 2016, the total intrinsic value of options exercised was $1.1 million. The total amount of cash received from exercise of these options was approximately $0.3 million and $1.1 million during the six months ended June 30, 2017 and 2016, respectively.

14


 

Restricted Stock Units

Restricted stock units are valued at the market price of a share of the Company’s common stock on the date of the grant. A summary of the restricted stock unit activity under the 2007 Plan for the six months ended June 30, 2017 is presented below:

 

Year-to-Date Activity

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

Per Share

 

 

Aggregate

Intrinsic

Value

 

Nonvested outstanding at December 31, 2016

 

 

1,640,790

 

 

$

8.54

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

Vested

 

 

(20,000

)

 

 

11.39

 

 

 

 

 

Forfeited

 

 

(28,000

)

 

 

9.80

 

 

 

 

 

Nonvested outstanding at June 30, 2017

 

 

1,592,790

 

 

$

8.48

 

 

$

16,517

 

 

As of June 30, 2017, there was no restricted stock unit activity under the 2017 Plan.

The total grant date fair value of restricted stock units that vested during the six months ended June 30, 2017 and 2016 was $0.2 million and $1.3 million, respectively.  

As of June 30, 2017, there was $8.2 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted average period of 1.5 years.

10. Stockholders’ Equity

Reserved Common Stock

As of June 30, 2017, the Company has reserved 9,152,865 shares of common stock for use in settling outstanding options and unvested restricted stock units that have not been issued as well as future awards available for grant under the 2017 Plan.

Tender Offer

On May 10, 2016, the Company commenced a tender offer (the “Tender Offer”) to purchase up to 8.0 million shares of its common stock, representing approximately 24.8% of the shares of TechTarget’s common stock issued and outstanding at that time, at a price of $7.75 per share.

The Tender Offer expired on June 8, 2016. In accordance with the terms of the Tender Offer, the Company accepted for purchase 5,237,843 shares of its common stock for a purchase price of $7.75 per share, or a total of $40.6 million. Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. The total cost of the Tender Offer was $40.8 million, which included approximately $0.2 million in costs directly attributable to the purchase of shares pursuant to the Tender Offer. In connection with the Tender Offer, TCV V, L.P., TCV Member Fund, L.P. (along with TCV V, L.P., referred to as the “TCV Funds”) and TCV Management 2004, L.L.C. (“TCM 2004”), each a related party, collectively tendered 3,379,249 shares of the Company’s common stock in the aggregate. Jay Hoag, a member of the Board at the time of the Tender Offer, was also a member of the general partner of the TCV Funds and a member of TCM 2004, which at the time was estimated to hold more than 5% of the voting securities of the Company. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the Tender Offer. Roger Marino, a member of the Board, indirectly controls shares in Rogram LLC.

Common Stock Repurchase Program

In June 2016, the Company announced that the Board had authorized a $20 million stock repurchase program (the “June 2016 Repurchase Program”), whereby the Company is authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be determined by the Board. During the six months ended June 30, 2017, the Company repurchased 243,214 shares of common stock for an aggregate purchase price of $2.1 million pursuant to the June 2016 Repurchase Program.

Repurchased shares are recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All share repurchases were funded with cash on hand.

15


 

On May 5, 2017, the Company’s Board reauthorized the common stock repurchase program to allow the Company to use the remaining balance of the unused authorization under the 2016 Repurchase Program after its original expiration in June 2017. The reauthorized program allows the Company to repurchase its common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be determined by management. The reauthorized program has no time limit and may be suspended at any time. Additionally, the Company may establish, from time to time, 10b5-1 trading plans that will provide flexibility as it buys back its shares.

11. Income Taxes

The Company’s effective income tax rate before discrete items was 44.8% and 39.9% for the six months ended June 30, 2017 and 2016, respectively. The higher rate in 2017, as compared to 2016, was primarily due to an increase in non-deductible expenses in the U.S. for 2017, largely related to stock-based compensation and officers’ compensation. The Company measures its interim period tax expense using an estimated annual effective tax rate and adjustments for discrete taxable events that occur during the interim period. The estimated annual effective income tax rate is based upon the Company’s estimations of annual pre-tax income, the geographic mix or pre-tax income, and its interpretations of tax laws. The Company updates the estimate of its annual effective tax rate at the end of each quarterly period. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

In the first quarter of 2017, the Company adopted ASU 2016-09, which requires that all excess tax benefits and tax deficiencies related to stock compensation be recognized as income tax expense or benefit in the income statement in the period incurred. The Company recognized an immaterial amount of income tax benefits for discrete items, including excess deductions, during each of the six months ended June 30, 2017 and 2016. As part of adopting ASU 2016-09, the Company recorded deferred tax assets for the federal and state excess tax benefit net operating losses in the amount of $0.2 million, with an offsetting entry to retained earnings.

12. Segment Information

The Company views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations and how its executive management team reviews results and makes decisions on how to allocate resources and assess performance.

Geographic Data

Net sales to unaffiliated customers by geographic area were as follows:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

United States

 

$

18,810

 

 

$

21,523

 

 

$

35,995

 

 

$

40,424

 

United Kingdom

 

$

3,246

 

 

$

2,737

 

 

$

5,641

 

 

$

5,400

 

Other international

 

 

4,608

 

 

 

4,914

 

 

 

8,605

 

 

 

8,381

 

Total

 

$

26,664

 

 

$

29,174

 

 

$

50,241

 

 

$

54,205

 

 

Long-lived assets by geographic area were as follows:

 

 

 

June 30,

2017

 

 

December 31,

2016

 

United States

 

$

97,909

 

 

$

98,330

 

International

 

 

5,296

 

 

 

4,972

 

Total

 

$

103,205

 

 

$

103,302

 

 

Net sales to unaffiliated customers by geographic area is based on the customers’ current billing addresses, and does not consider the geo-targeted (target audience) location of the campaign. Long-lived assets are comprised of property and equipment, net; goodwill; and intangible assets, net. No single country outside of the U.S. accounted for 10% or more of the Company’s long-lived assets during either of these periods.

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including those discussed below in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2016 under Part I, Item 1A, “Risk Factors,” and in the other documents we file with the Securities and Exchange Commission. Please refer to our “Forward-Looking Statements” section on page 34.

Overview

Background

We are a Delaware corporation incorporated on September 14, 1999. Through continued innovation around our specialized online content for buyers of enterprise information technology (“IT”), we have become a global leader in purchase intent-driven marketing and sales services that deliver business impact for enterprise technology vendors. Our offerings enable technology vendors to better identify, reach and influence corporate IT decision makers actively researching specific IT purchases. We improve vendors’ ability to impact these audiences for business growth using advanced targeting, analytics, and data services complemented with customized marketing programs that integrate demand generation and brand marketing and advertising techniques.

IT professionals have become increasingly specialized, and because each of the websites within our network of over 140 websites focuses on a specific IT sector such as storage, security or networking, IT professionals rely on us for key decision support information tailored to their specific areas of responsibility.

We enable IT professionals to navigate the complex and rapidly-changing IT landscape where purchasing decisions can have significant financial and operational consequences. Our content strategy includes three primary sources which IT professionals use to assist them in their pre-purchase research: independent content provided by our professionals, vendor-generated content provided by our customers and user-generated, or peer-to-peer, content. In addition to utilizing our independent editorial content, registered members appreciate the ability to deepen their pre-purchase research by accessing the extensive vendor supplied content available across our website network. Likewise, these members derive significant additional value from the ability our network provides to seamlessly interact with and contribute to information exchanges in a given field.

We had approximately 18.7 million and 17.5 million registered members – our “audiences” – as of June 30, 2017 and 2016, respectively. While the size of our registered user base does not provide direct insight into our customer numbers or our revenues, the value of our services sold to our customers is a direct result of the breadth and reach of this content footprint. This footprint creates the opportunity for our clients to gain business leverage by targeting our audiences through customized marketing programs. Likewise, the behavior exhibited by these audiences enables us to provide our customers with data products to improve their marketing and sales efforts. The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the IT vendors’ specific products. With it, we have developed a broad customer base, and now deliver marketing and sales services programs to approximately 1,300 customers annually.

Executive Summary

Our revenues for the six months ended June 30, 2017 declined approximately 7%, to $50.2 million, compared with the same period in 2016. IT Deal AlertTM revenues were up 45% in the first half of 2017, compared to the first half of 2016, and quarterly IT Deal Alert revenues topped $10 million for the second consecutive quarter. Revenues from our Priority EngineTM and Deal DataTM products were up 124% in the first half of 2017, compared to the first half of 2016, and the number of IT Deal Alert customers in the first half of 2017 was up 52% from the second quarter of 2016, to over 500 customers. We had 59 new Priority Engine customers in the second quarter of 2017 and we had a successful launch of Priority Engine outside North America, with 78 international customers utilizing the service in the second quarter of 2017.  

We continue to have success selling annual deals and in the second quarter of 2017, 21% of our online revenue was derived from longer term contracts. The amount of revenue that we derived from longer term contracts in the second quarter of 2017 increased more than 70%, compared to the amount that we recognized in the second quarter of 2016.  

While the news on IT Deal Alert has been consistently positive, the macro headwinds that we are facing continue to stubbornly persist. These include a weak IT spending environment, a strong U.S. dollar dampening markets outside of North America and some of our largest customers in the middle of merger integrations. Those factors continue to show up in our core numbers. Core online revenue was down 24% in the first half of 2017, compared to the first half of 2016. Our core revenues declined $5.3 million in the six-

17


 

month period from ten major global customers, as they are the ones most affected by the conditions mentioned above. Core revenues from the four accounts that are transitioning through complex post-merger consolidation and integration transactions were down approximately 40% in the first half. While this situation is beyond our control and the visibility is limited, our experience has shown that after the corporate consolidation and integration process completed, marketing budgets recover. If history holds to form, those four accounts will do better in the second half of this year. These declines in revenues from these major customers also contributed to the results of our online international geo-targeted revenues, where our target audience is outside North America (“International”), which remained relatively flat compared to the prior year.

As indicated, online international geo-targeted revenues, where our target audience is outside North America (“International”), increased 1% for the first half of 2017, compared with the prior year period, driven by International IT Deal Alert growth, partially offset by a decrease in core online sales, primarily from our largest customers, which was offset in part by International IT Deal Alert growth. The weakness in core online continues to be distributed across Europe, the Middle East, and Africa (“EMEA”), Asia Pacific (“APAC”) and Latin America.

Gross margin was 73% and 74% for the three months ended June 30, 2017 and 2016, respectively. Online gross profit decreased by $1.3 million, primarily attributable to the decline in online revenues as compared to the same period a year ago. Events gross profit decreased by $0.7 million as a result of the decreased events revenues as compared to the same period in the prior year. As we announced on February 14, 2017, we have phased out our events products.

Business Trends

The following discussion highlights key trends affecting our business.

 

Macro-economic Conditions and Industry Trends.  Because most of our customers are IT vendors, the success of our business is intrinsically linked to the health, and subject to the market conditions, of the IT industry. In the three months ended June 30, 2017, we did not see any meaningful improvement in the IT market and many of our customers continue to be revenue-challenged. This fact, coupled with some of our largest clients’ corporate post-merger consolidation and integration efforts, as well as caution because of foreign currency concerns, has continued to put pressure on marketing budgets. Our growth continues to be driven in large part by the return on the investments we made in our data analytics suite of products, IT Deal Alert, which continues to drive market share gains for us. While we will continue to invest in this growth area, management will continue to carefully control discretionary spending such as travel and entertainment, and the filling of new and replacement positions, in an effort to maintain profit margins and cash flows.

 

Brexit.  The announcement of the results of the United Kingdom’s referendum in which voters approved an exit of the United Kingdom from the European Union, commonly referred to as “Brexit,” has resulted in significant general economic uncertainty as well as volatility in global stock markets and currency exchange rate fluctuations. On March 29, 2017, the United Kingdom formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Secretary of State for Exiting the European Union David Davis and European Union Chief Negotiator Michel Barnier commenced exit negotiations on June 19, 2017. While the parties have reported constructive progress with respect to the negotiations to date, continued uncertainty remains regarding the terms of the United Kingdom’s new partnership with the European Union and its member states. The overall impact of Brexit may create further global economic uncertainty, which may cause a subset of our customers to more closely monitor their costs in the affected region. Our revenues generated from customers who have billing addresses within the United Kingdom were approximately 12% of our total revenues for the six months ended June 30, 2017.

 

Customer Demographics. In the three months ended June 30, 2017, online revenues from ten major global customers, which generally have the most international exposure, decreased approximately 7% compared to the same period a year ago. Where we have historically reported a group of 12 major global customers, due to merger and consolidation, this group has been reduced to ten. Online revenues from our mid-sized customers (our largest 100 customers, excluding those companies we consider our ten major global customers, who generally have less exposure internationally) decreased by approximately 1% compared to the same period a year ago. Online revenues attributable to our smaller customers, which tend to be venture capital-backed start-ups that primarily operate in North America, decreased by approximately 3% over the prior year period. All three customer segments continued to report a challenging environment, and this translated into our customers remaining cautious with their marketing expenditures.

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Our key strategic initiatives include:

 

Geographic – During the three months ended June 30, 2017, approximately 35% of our online revenues were derived from International campaigns. International marketing budgets continue to be challenged by the effects of the strong dollar and the uncertainty caused by Brexit. International results were also impacted by the large corporate post-merger consolidation and integration efforts noted above. We rolled out Priority Engine™ in Europe in the third quarter of 2016, and we launched Priority Engine in APAC during the fourth quarter of 2016.

 

Product – IT Deal Alert revenues were approximately $11.7 million in the three months ended June 30, 2017, up from approximately $8.4 million in the same period in 2016. This includes International IT Deal Alert revenues of $3.2 million, which is also included in International revenues as discussed above. In the second quarter of 2017, we had over 500 active customers utilizing our IT Deal Alert products and services, up from 277 customers in the second quarter of 2016. We expect IT Deal Alert to continue to be a meaningful growth driver through 2017.

Our core online revenues were down 22% in the second quarter of 2017 compared to the second quarter of 2016, which was disproportionately driven by our largest spenders.  

Sources of Revenues

Revenue changes for the three and six month periods ended June 30, 2017, as compared to the same periods in 2016, were as follows:

 

 

 

Three Months Ended June 30,

 

 

2017 vs. 2016

 

 

Six Months Ended

June 30,

 

 

2017 vs. 2016

 

 

 

2017

 

 

2016

 

 

change

 

 

2017

 

 

2016

 

 

change

 

 

 

($ in thousands)

 

 

 

 

 

 

($ in thousands)

 

 

 

 

 

Total Online

 

$

26,664

 

 

$

27,726

 

 

 

(4

)%

 

$

50,073

 

 

$

51,995

 

 

 

(4

)%

Total Online by Geographic Area:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America IT Deal Alert

 

 

8,441

 

 

 

7,041

 

 

 

20

%

 

 

16,609

 

 

 

12,734

 

 

 

30

%

North America Core Online

 

 

8,993

 

 

 

11,778

 

 

 

(24

)%

 

 

17,070

 

 

 

23,039

 

 

 

(26

)%

Total North America Online

 

 

17,434

 

 

 

18,819

 

 

 

(7

)%

 

 

33,679

 

 

 

35,773

 

 

 

(6

)%

International:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International IT Deal Alert

 

 

3,215

 

 

 

1,351

 

 

 

138

%

 

 

5,418

 

 

 

2,469

 

 

 

119

%

International Core Online

 

 

6,015

 

 

 

7,556

 

 

 

(20

)%

 

 

10,976

 

 

 

13,753

 

 

 

(20

)%

Total International Online

 

 

9,230

 

 

 

8,907

 

 

 

4

%

 

 

16,394

 

 

 

16,222

 

 

 

1

%

Total Online by Product:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT Deal Alert:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America IT Deal Alert

 

 

8,441

 

 

 

7,041

 

 

 

20

%

 

 

16,609

 

 

 

12,734

 

 

 

30

%

International IT Deal Alert

 

 

3,215

 

 

 

1,351

 

 

 

138

%

 

 

5,418

 

 

 

2,469

 

 

 

119

%

Total IT Deal Alert

 

 

11,656

 

 

 

8,392

 

 

 

39

%

 

 

22,027

 

 

 

15,203

 

 

 

45

%

Core Online:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America Core Online

 

 

8,993

 

 

 

11,778

 

 

 

(24

)%

 

 

17,070

 

 

 

23,039

 

 

 

(26

)%

International Core Online

 

 

6,015

 

 

 

7,556

 

 

 

(20

)%

 

 

10,976

 

 

 

13,753

 

 

 

(20

)%

Total Core Online

 

 

15,008

 

 

 

19,334

 

 

 

(22

)%

 

 

28,046

 

 

 

36,792

 

 

 

(24

)%

Total Events

 

$

 

 

$

1,448

 

 

 

(100

)%

 

$

168

 

 

$

2,210

 

 

 

(92

)%

Total Revenues

 

$

26,664

 

 

$

29,174

 

 

 

(9

)%

 

$

50,241

 

 

$

54,205

 

 

 

(7

)%

 

We sell customized marketing programs to IT vendors targeting a specific audience within a particular IT sector or sub-sector. We maintain multiple points of contact with our customers to provide support throughout their organizations and their customers’ IT sales cycles. As a result, our customers often run multiple advertising programs with us in order to target their desired audience of IT professionals more effectively. There are multiple factors that can impact our customers’ marketing and advertising objectives and spending with us, including but not limited to, IT product launches, increases or decreases to their advertising budgets, the timing of key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads. Our products and services are generally delivered under short-term contracts that run for the length of a given program, typically less than six months. In 2016, we began to enter into annual contracts with certain customers, and in the quarter ended June 30, 2017, approximately 21% of our online revenues were from longer term contracts of approximately 12 months. In the three months ended June 30, 2017, demand generation and brand advertising remained our primary sources of

19


 

revenues, while data analytics-driven intelligence solutions, driven by growth in our IT Deal Alert products and services, contributed approximately 44% of online revenues as compared with approximately 30% for the same period in 2016.

The majority of our revenues are derived from the delivery of our online offerings. Online revenues represented 100% and 95% of total revenues for the three months ended June 30, 2017 and 2016, respectively, and 100% and 96% of total revenues for the six months ended June 30, 2017 and 2016, respectively. As previously disclosed, we have phased out our events product line.

Product and Service Offerings

We use our online offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT decision makers. The following is a description of the products and services we offer:

Online

IT Deal Alert. IT Deal Alert is a suite of products and services for IT vendors that leverages the detailed purchase intent data that we collect about end-user IT organizations. Through proprietary scoring methodologies, we use this insight to help our customers identify and prioritize accounts whose content consumption around specific IT topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile accounts’ upcoming purchase plans.

 

IT Deal Alert: Qualified Sales Opportunities™. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects, including information on scope and purchase considerations, in approximately 150 technology-specific segments.

 

IT Deal Alert: Priority Engine. Priority Engine is a subscription service powered by our Activity Intelligence™ platform, which integrates with leading customer relationship management and marketing automation platforms from salesforce.com, Marketo, Inc., Eloqua, Pardot, Hubspot, and Integrate. The service delivers information that enables marketers and sales personnel to identify and understand accounts and individuals actively researching new technology purchases and then to engage those active prospects within the organizations that are relevant to the purchase. We sell this service in approximately 200 technology-specific segments which our customers use for demand generation, account-based marketing and other marketing and sales activities.

 

IT Deal Alert: Deal Data™. Deal Data is a customized solution aimed at sales intelligence and data scientist functions within our customer organizations. It renders our Activity Intelligence data directly consumable by the customer's internal applications.

 

IT Deal Alert: TechTarget Research™. TechTarget Research is a subscription product that sources proprietary information about purchase transactions from IT professionals who are making or have recently completed these purchases. The offering provides data on market trends, pricing dynamics and vendor win/loss and displacement trends.

Core Online. Our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.

Demand Solutions. Our suite of demand solutions offerings allows IT vendors to maximize return on investment by capturing sales leads from the distribution and promotion of content to our audience of IT professionals. All of our demand solutions campaigns offer the Activity Intelligence Dashboard, a tool that gives our customers’ marketers and sales representatives a near real-time view of their prospects including insights on the research activities of technology buying teams at the individual, team and account levels. Demand solutions offerings may also include an additional service, TechTarget Re-Engage™, which helps both technology marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate engagement with specific accounts.

Our demand solutions offerings may also include the following program components:

 

White Papers. White papers are technical documents created by IT vendors to describe business or technical problems which are addressed by the vendors’ products or services. In a program that includes demand solutions, we post white papers on our relevant websites and our users receive targeted promotions about these content assets. Prior to viewing white papers, our registered members and visitors supply their corporate contact information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software.

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Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcasts, podcasts, videocasts, virtual trade shows and similar content bring informational sessions directly to attendees’ desktops and mobile devices. As is the case with white papers, our users supply their corporate contact and qualification information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to the registrant information and visibility before, during and after the event.

 

Content Sponsorships. IT vendors, or groups of vendors, pay us to sponsor independent editorially created content vehicles on specific technology topics where the registrant information is then provided to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors in a single segment, with the registrant information provided to all participating sponsors. Because these offerings are editorially driven, our customers get the benefit of association with independently created content as well as access to sales leads that are researching the topic.

Brand Solutions. Our suite of brand solutions offerings provides IT vendors exposure to targeted audiences of IT professionals actively researching information related to their products and services. We leverage our Activity Intelligence product framework to enable significant segmentation and targeting of specific audiences that can be accessed through these programs. Components of brand programs may include:

 

On-Network Branding. These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites we operate. Programs may include specific sites, or audience segments across our sites.

 

Off-Network Branding. Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are visiting other websites on the Internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.

 

Microsites and Related Formats. We have a range of solutions that create stand-alone websites for IT vendors, or “embedded” websites that exist within the context of our existing websites, to enable a more immersive experience for IT professionals with the content and brand messaging of the vendor.

Custom Content Creation. We will at times create white papers, case studies, webcasts, or videos to our customers’ specifications through our Custom Content team. These customized content assets are then promoted to our audience within both demand solutions and brand solutions programs.

Events

Historically, we have operated a select number of face-to-face events, the majority of which were free to IT professionals and were sponsored by IT vendors. Events revenues represented 5% and 4% of total revenues for the three and six months ended June 30, 2016, respectively. In 2017, we ceased to offer these services to our customers and instead focus our efforts on enhancing our data driven product offerings and working with our customers to gain the fullest advantage that our data-driven products can offer.

Cost of Revenues, Operating Expenses and Other

Expenses consist of cost of online and event revenues, selling and marketing, product development, general and administrative, depreciation, amortization of intangible assets, and interest and other expense, net. Personnel-related costs are a significant component of each of these expense categories except for depreciation, amortization, and interest and other expense, net.

Cost of Online Revenues. Cost of online revenues consist primarily of: salaries and related personnel costs; member acquisition expenses (primarily keyword purchases from leading Internet search sites); freelance writer expenses; website hosting costs; vendor expenses associated with the delivery of webcast, podcast, videocast and similar content, and other offerings; stock-based compensation expenses; facility expenses, and other related overhead.

Cost of Events Revenues. Cost of events revenues consist primarily of: direct expenses, including site, food and beverages for the event attendees and event speaker expenses; salaries and related personnel costs; travel-related expenses; facility expenses, and other related overhead.

Selling and Marketing. Selling and marketing expenses consist primarily of: salaries and related personnel costs; sales commissions; travel-related expenses; stock-based compensation expenses; facility expenses and other related overhead. Sales commissions are recorded as expense when earned by the employee, based on recorded revenues.

21


 

Product Development. Product development includes the creation and maintenance of our network of websites, advertiser offerings and technical infrastructure. Product development expense consists primarily of salaries and related personnel costs; stock-based compensation expenses; facility expenses, and other related overhead.

General and Administrative. General and administrative expenses consist primarily of salaries and related personnel costs; facility expenses and related overhead; accounting, legal and other professional fees; and stock-based compensation expenses.

Depreciation. Depreciation expense consists of the depreciation of our property and equipment and other capitalized assets. Depreciation is calculated using the straight-line method over their estimated useful lives, ranging from two to ten years.

Amortization of Intangible Assets. Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from five to ten years, using methods that are expected to reflect the estimated pattern of economic use.

Interest and Other Income (Expense), Net. Interest and other expense, net consists primarily of interest costs and the related amortization of deferred issuance costs on amounts borrowed under our Senior Secured Credit Facilities Credit Agreement for a term loan (“Term Loan Agreement”) and amortization of premiums on our investments, less any interest income earned on cash, cash equivalents, and short-term and long-term investments. We historically have invested our cash in money market accounts, municipal bonds, government agency bonds, U.S Treasury securities and corporate bonds. Other expense, net consists of non-operating gains or losses, primarily related to realized and unrealized foreign currency gains and losses on trade assets and liabilities.

Application of Critical Accounting Policies and Use of Estimates

The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenues, long-lived assets, goodwill, allowance for doubtful accounts, stock-based compensation, contingent liabilities, self-insurance accruals and income taxes. We based our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Our actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are those that affect our more significant judgments used in the preparation of our consolidated financial statements. A description of our critical accounting policies and estimates is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Other than those noted in the “Accounting Guidance Adopted in 2017” section in Note 2 to our Consolidated Financial Statements, there were no material changes to our critical accounting policies and estimates during the first six months of 2017.

Income Taxes

We are subject to income taxes in both the U.S. and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.

Our deferred tax assets are comprised primarily of book to tax differences on stock-based compensation and timing of deductions for deferred rent, accrued expenses, depreciation and amortization. As of June 30, 2017, we had state net operating loss (“NOL”) carryforwards of approximately $1.3 million which expire at various dates through 2033. We also had foreign NOL carryforwards of $1.0 million, which may be used to offset future taxable income in foreign jurisdictions until they expire at various dates through 2021. The deferred tax assets related to the foreign NOL carryforwards have been fully offset by a valuation allowance. 

22


 

Results of Operations

The following table sets forth our results of operations for the periods indicated, including percentage of total revenues:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

($ in thousands)

 

 

($ in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

26,664

 

 

 

100

%

 

$

27,726

 

 

 

95

%

 

$

50,073

 

 

 

100

%

 

$

51,995

 

 

 

96

%

Events

 

 

 

 

 

0

%

 

 

1,448

 

 

 

5

%

 

 

168

 

 

 

0

%

 

 

2,210

 

 

 

4

%

Total revenues

 

 

26,664

 

 

 

100

%

 

 

29,174

 

 

 

100

%

 

 

50,241

 

 

 

100

%

 

 

54,205

 

 

 

100

%

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

 

7,085

 

 

 

27

%

 

 

6,813

 

 

 

23

%

 

 

13,980

 

 

 

28

%

 

 

13,471

 

 

 

25

%

Events

 

 

 

 

 

0

%

 

 

791

 

 

 

3

%

 

 

41

 

 

 

0

%

 

 

1,326

 

 

 

2

%

Total cost of revenues

 

 

7,085

 

 

 

27

%

 

 

7,604

 

 

 

26

%

 

 

14,021

 

 

 

28

%

 

 

14,797

 

 

 

27

%

Gross profit

 

 

19,579

 

 

 

73

%

 

 

21,570

 

 

 

74

%

 

 

36,220

 

 

 

72

%

 

 

39,408

 

 

 

73

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

10,745

 

 

 

40

%

 

 

11,028

 

 

 

38

%

 

 

21,438

 

 

 

43

%

 

 

22,088

 

 

 

40

%

Product development

 

 

2,016

 

 

 

8

%

 

 

1,945

 

 

 

7

%

 

 

3,959

 

 

 

8

%

 

 

3,853

 

 

 

7

%

General and administrative

 

 

3,198

 

 

 

12

%

 

 

3,044

 

 

 

10

%

 

 

6,254

 

 

 

12

%

 

 

6,254

 

 

 

12

%

Depreciation

 

 

1,093

 

 

 

4

%

 

 

1,016

 

 

 

3

%

 

 

2,184

 

 

 

4

%

 

 

2,036

 

 

 

4

%

Amortization of intangible assets

 

 

42

 

 

 

0

%

 

 

233

 

 

 

1

%

 

 

82

 

 

 

0

%

 

 

535

 

 

 

1

%

Total operating expenses

 

 

17,094

 

 

 

64

%

 

 

17,266

 

 

 

59

%

 

 

33,917

 

 

 

68

%

 

 

34,866

 

 

 

65

%

Operating income

 

 

2,485

 

 

 

9

%

 

 

4,304

 

 

 

15

%

 

 

2,303

 

 

 

5

%

 

 

4,542

 

 

 

8

%

Interest and other expense, net

 

 

(94

)

 

 

(0

)%

 

 

(508

)

 

 

(2

)%

 

 

(257

)

 

 

(1

)%

 

 

(566

)

 

 

0

%

Income before provision for income

   taxes

 

 

2,391

 

 

 

9

%

 

 

3,796

 

 

 

13

%

 

 

2,046

 

 

 

4

%

 

 

3,976

 

 

 

8

%

Provision for income taxes

 

 

1,030

 

 

 

4

%

 

 

1,397

 

 

 

5

%

 

 

714

 

 

 

1

%

 

 

1,625

 

 

 

2

%

Net income

 

$

1,361

 

 

 

5

%

 

$

2,399

 

 

 

8

%

 

$

1,332

 

 

 

3

%

 

$

2,351

 

 

 

6

%

 

Comparison of Three Months Ended June 30, 2017 and 2016

Revenues

 

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

26,664

 

 

$

27,726

 

 

$

(1,062

)

 

 

(4

)%

Events

 

 

 

 

 

1,448

 

 

 

(1,448

)

 

 

(100

)

Total revenues

 

$

26,664

 

 

$

29,174

 

 

$

(2,510

)

 

 

(9

)%

 

Online. The decrease in online revenues is primarily attributable to the aforementioned contraction in spending from ten major global customers, including the four large customers who are involved in corporate post-merger consolidation and integration efforts. Partially offsetting these declines was an increase of $3.3 million in revenues from our IT Deal Alert product offerings.

Events. The decrease in events revenues is due to our decision to cease offering these services to our customers during 2017.

23


 

Cost of Revenues and Gross Profit

 

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

7,085

 

 

$

6,813

 

 

$

272

 

 

 

4

%

Events

 

 

 

 

 

791

 

 

 

(791

)

 

 

(100

)

Total cost of revenues

 

$

7,085

 

 

$

7,604

 

 

$

(519

)

 

 

(7

)%

Gross profit

 

$

19,579

 

 

$

21,570

 

 

$

(1,991

)

 

 

(9

)%

Gross profit percentage

 

 

73

%

 

 

74

%

 

 

 

 

 

 

 

 

 

Cost of Online Revenues. The increase in cost of online revenues was primarily attributable to the slightly higher relative costs associated with servicing our new product offerings as well as contracted services costs related to fulfilling certain demand generation campaigns and certain international partner campaigns, partially offset by a decrease in editorial-related costs.

Cost of Events Revenues. The decrease in cost of events revenues was due to both decreases in variable direct and employee-related costs and the decrease in the number of events that we conducted as a result of phasing out our events products.

Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage was 73% for the second quarter of 2017 and 74% for the second quarter of 2016. Online gross profit decreased by $1.3 million in the second quarter of 2017, as compared to the same period in 2016, primarily attributable to the decrease in online revenues as compared to the same period a year ago, in addition to increased costs associated with our new products as well as the contracted services associated with fulfilling certain demand generation campaigns. Online gross profit percentage decreased to 73% in the second quarter of 2017 from 75% in the second quarter of 2016. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period. We expect the phase out of the events products to have a positive impact on our gross profit and gross profit margin going forward.

Operating Expenses and Other

 

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

$

10,745

 

 

$

11,028

 

 

$

(283

)

 

 

(3

)%

Product development

 

 

2,016

 

 

 

1,945

 

 

 

71

 

 

 

4

 

General and administrative

 

 

3,198

 

 

 

3,044

 

 

 

154

 

 

 

5

 

Depreciation

 

 

1,093

 

 

 

1,016

 

 

 

77

 

 

 

8

 

Amortization of intangible assets

 

 

42

 

 

 

233

 

 

 

(191

)

 

 

(82

)

Total operating expenses

 

$

17,094

 

 

$

17,266

 

 

$

(172

)

 

 

(1

)%

Interest and other expense, net

 

$

(94

)

 

$

(508

)

 

$

414

 

 

 

(81

)%

Provision for income taxes

 

$

1,030

 

 

$

1,397

 

 

$

(367

)

 

 

(26

)%

 

Selling and Marketing. Selling and marketing expenses decreased for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to declines in employee-related expenses because of lower headcount and a decrease in variable compensation-related expenses.

Product Development. Product development expense remained relatively flat in the three months ended June 30, 2017, compared with the same period the prior year. Costs that were capitalized associated with internal-use software and website development were approximately the same year over year.

General and Administrative. The increase in general and administrative expense for the three months ended June 30, 2017, compared to the same period in 2016, was primarily caused by increases in stock-based compensation and other labor-related costs.

24


 

Depreciation and Amortization of Intangible Assets. Depreciation expense remained relatively flat when compared to the same period in 2016. The decrease in amortization of intangible assets expense was attributable to certain intangible assets becoming fully amortized.

Interest and Other Expense, Net. Interest and other expense, net in the second quarter of 2017 was $0.1 million, compared to $0.5 million in the second quarter of 2016, due to fluctuations in currency exchange rates, partially offset by increased interest expense associated with the Term Loan Agreement that we entered into during the second quarter of 2016.

Provision for Income Taxes. Our effective tax rate was 43.1% and 39.8% for the three months ended June 30, 2017 and 2016, respectively. We have permanent differences that increase our tax expense on income or reduce our tax benefit on loss; the higher rate in 2017, as compared to 2016, was primarily due to an increase in non-deductible expenses in the U.S. for 2017, largely related to stock-based compensation and officers’ compensation. The effective tax rate differs from the statutory rate primarily due to these permanent differences of non-deductible expenses, state income taxes, and foreign income taxes.

Comparison of Six Months Ended June 30, 2017 and 2016

Revenues

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

50,073

 

 

$

51,995

 

 

$

(1,922

)

 

 

(4

)%

Events

 

 

168

 

 

 

2,210

 

 

 

(2,042

)

 

 

(92

)

Total revenues

 

$

50,241

 

 

$

54,205

 

 

$

(3,964

)

 

 

(7

)%

 

Online. The decrease in online revenues is primarily attributable to the aforementioned contraction in spending from ten major global customers, including the four large customers who are involved in corporate post-merger consolidation and integration efforts. Partially offsetting these declines was an increase of $6.8 million in revenues from our IT Deal Alert product offerings.

Events. The decrease in events revenues is due to our decision to cease offering these services to our customers during 2017. The events revenue in the six months ended June 30, 2017 was from residual events which could not be canceled.

Cost of Revenues and Gross Profit

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

13,980

 

 

$

13,471

 

 

$

509

 

 

 

4

%

Events

 

 

41

 

 

 

1,326

 

 

 

(1,285

)

 

 

(97

)

Total cost of revenues

 

$

14,021

 

 

$

14,797

 

 

$

(776

)

 

 

(5

)%

Gross profit

 

$

36,220

 

 

$

39,408

 

 

$

(3,188

)

 

 

(8

)%

Gross profit percentage

 

 

72

%

 

 

73

%

 

 

 

 

 

 

 

 

 

Cost of Online Revenues. The increase in cost of online revenues was primarily attributable to the slightly higher relative costs associated with servicing our new product offerings as well as contracted services costs related to fulfilling certain demand generation campaigns and certain international partner campaigns, partially offset by a decrease in editorial-related costs.

Cost of Events Revenues. The decrease in cost of events revenues was due to both decreases in variable direct and employee-related costs and the decrease in the number of events that we conducted as a result of phasing out our events products.

Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage was 72% for the first six months of 2017 and 73% for the first six months of 2016. Online gross profit decreased by $2.4 million in the first six months of 2017, as compared to the same period in 2016, primarily attributable to the decrease in online

25


 

revenues as compared to the same period a year ago, in addition to increased costs associated with our new products as well as the contracted services associated with fulfilling certain demand generation campaigns. Online gross profit percentage decreased to 72% in the first six months of 2017 from 74% in the first six months of 2016. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period. We expect the phase out of the events products to have a positive impact on our gross profit and gross profit margin going forward.

Operating Expenses and Other

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

Increase

(Decrease)

 

 

Percent

Change

 

 

 

($ in thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

$

21,438

 

 

$

22,088

 

 

$

(650

)

 

 

(3

)%

Product development

 

 

3,959

 

 

 

3,953

 

 

 

6

 

 

 

 

General and administrative

 

 

6,254

 

 

 

6,254

 

 

 

 

 

 

 

Depreciation

 

 

2,184

 

 

 

2,036

 

 

 

148

 

 

 

7

 

Amortization of intangible assets

 

 

82

 

 

 

535

 

 

 

(453

)

 

 

(85

)

Total operating expenses

 

$

33,917

 

 

$

34,866

 

 

$

(949

)

 

 

(3

)%

Interest and other expense, net

 

$

(257

)

 

$

(566

)

 

$

309

 

 

 

(55

)%

Provision for income taxes

 

$

714

 

 

$

1,625

 

 

$

(911

)

 

 

(56

)%

 

Selling and Marketing. Selling and marketing expenses decreased for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, primarily due to declines in employee-related expenses because of lower headcount and a decrease in variable compensation-related expenses.

Product Development. Product development expense remained relatively flat for the six months ended June 30, 2017, compared with the same period the prior year. Costs that were capitalized associated with internal-use software and website development increased slightly year over year.

General and Administrative. General and administrative expense remained flat for the six months ended June 30, 2017, as compared to the same period in 2016.

Depreciation and Amortization of Intangible Assets. Depreciation expense increased when compared to the same period in 2016 primarily because of additions to property and equipment and the timing with which the depreciation expense is recorded. The decrease in amortization of intangible assets expense was attributable to certain intangible assets becoming fully amortized.

Interest and Other Expense, Net. Interest and other expense, net in the first six months of 2017 was $0.3 million, compared to $0.6 million in the first six months of 2016, due to fluctuations in currency exchange rates, partially offset by increased interest expense associated with the Term Loan Agreement that we entered into during the second quarter of 2016.

Provision for Income Taxes. Our effective tax rate was 34.9% and 39.9% for the six months ended June 30, 2017 and 2016, respectively. We have permanent differences that increase our tax expense on income or reduce our tax benefit on loss; the lower rate in 2017, as compared to 2016, was primarily due to an increase in discrete items in the U.S. for 2017, largely related to stock-based compensation and foreign taxes.

Seasonality

The timing of our revenues is affected by seasonal factors. Our revenues are seasonal primarily as a result of the annual budget approval process of many of our customers, the normal timing at which our customers introduce new products, and the historical decrease in advertising in summer months. The timing of revenues in relation to our expenses, many of which do not vary directly with revenues, has an impact on the cost of online revenues, selling and marketing, product development, and general and administrative expenses as a percentage of revenues in each calendar quarter during the year.

The majority of our expenses are personnel-related and include salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period.

26


 

Liquidity and Capital Resources

Resources

At June 30, 2017, our cash, cash equivalents, and investments totaled $36.6 million, a $0.7 million decrease from December 31, 2016. We believe that our existing cash, cash equivalents, and investments and our cash flow from operating activities will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion internationally, future acquisitions we might undertake, and the expansion into complementary businesses. To the extent that our cash and cash equivalents, investments and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses.

 

 

 

June 30,

2017

 

 

December 31,

2016

 

 

 

(in thousands)

 

Cash, cash equivalents and investments

 

$

36,597

 

 

$

37,274

 

Accounts receivable, net

 

$

24,080

 

 

$

22,551

 

 

Cash, Cash Equivalents, and Investments

Our cash, cash equivalents, and investments at June 30, 2017 were held for working capital purposes and were invested primarily in money market accounts, municipal bonds and government agency bonds and, to a lesser extent, corporate bonds. We do not enter into investments for trading or speculative purposes.

Accounts Receivable, Net

Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days sales outstanding (“DSO”) as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at quarter end divided by total revenues for the applicable period, multiplied by the number of days in the applicable period. DSO was 82 days at June 30, 2017 and 78 days at December 31, 2016. The increase in DSO was primarily due to the timing of payments from all classes of customers. We typically see an increase in DSO from December 31 to June 30 due to the reduction of revenues and historically strong collections in the fourth quarter.

Cash Flows

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Cash provided by operating activities

 

$

6,558

 

 

$

8,414

 

Cash provided by (used in) investing activities

 

$

1,548

 

 

$

(2,648

)

Cash (used in) provided by financing activities

 

$

(5,121

)

 

$

7,949

 

 

Operating Activities

Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, the provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash provided by operating activities for the six months ended June 30, 2017 was $6.6 million, compared to cash provided by operating activities of $8.4 million for the six months ended June 30, 2016.

The decrease in cash provided by operating activities was primarily a result of changes in operating assets and liabilities of $(0.8) million compared to $0.2 million in the first six months of 2017 and 2016, respectively. Significant components of the changes in assets and liabilities in the first six months of 2017 included a $0.9 million increase in income taxes payable, a $0.7 million decrease in accounts payable, a $0.6 million decrease in accrued expenses and other current liabilities, and a $0.2 million net increase in accounts receivable and deferred revenue.

27


 

Investing Activities

Cash provided by investing activities in the six months ended June 30, 2017 was $1.5 million and was primarily a result of proceeds from sales and maturities of investments, partially offset by the purchase of property and equipment, which was made up primarily of internal-use software and website development costs, computer equipment, and related software. Cash used in investing activities in the six months ended June 30, 2016 was $2.6 million and was related to the purchase of property and equipment, made up primarily of internal-use software and website development costs. We capitalized internal use software and website development costs of $0.8 million for each of the three months ended June 30, 2017 and 2016, and $1.6 million and $1.5 million for the six months ended June 30, 2017 and 2016, respectively.

Financing Activities

In the first six months of 2017, we used $5.1 million for financing activities, consisting primarily of $2.5 million for the repayment of principal on the Term Loan and $2.1 million for the purchase of treasury shares and related costs. In the first six months of 2016, we received $7.9 million from financing activities.

Common Stock Repurchase Program

In June 2016, we announced that our Board of Directors (our “Board”) had authorized a $20 million stock repurchase program (the “June 2016 Repurchase Program”), whereby we are authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be determined by our Board. During the three and six months ended June 30, 2017, we repurchased 82,067 and 243,214 shares of common stock, respectively, for an aggregate purchase price of $0.8 million and $2.1 million, respectively, pursuant to the June 2016 Repurchase Program.

Repurchased shares are recorded under the cost method and are reflected as treasury stock in our accompanying Consolidated Balance Sheets. All share repurchases were funded with cash on hand.

On May 5, 2017, our Board reauthorized the common stock repurchase program to allow us to use the remaining balance of the unused authorization under the 2016 Repurchase Program after its original expiration in June 2017. The reauthorized program allows us to repurchase our common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be determined by our management. The reauthorized program has no time limit and may be suspended at any time. Additionally, we may establish, from time to time, 10b5-1 trading plans that will provide flexibility as we buy back our shares.

Tender Offer

On May 10, 2016, we commenced a Tender Offer to purchase up to 8.0 million shares of our common stock at a price of $7.75 per share.

The Tender Offer expired on June 8, 2016. In accordance with the terms of the Tender Offer, we accepted for purchase 5,237,843 shares of our common stock for a total of $40.8 million, which included approximately $0.2 million in costs directly attributable to the Tender Offer. In connection with the Tender Offer, TCV V, L.P., TCV Member Fund, L.P. (along with TCV V, L.P., referred to as the “TCV Funds”) and TCV Management 2004, L.L.C. (“TCM 2004”), each a related party, collectively tendered 3,379,249 shares of our common stock in the aggregate. Jay Hoag, a member of our Board at the time of the Tender Offer, was also a member of the general partner of the TCV Funds and a member of TCM 2004, which at the time was estimated to hold more than 5% of our voting securities. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the Tender Offer. Roger Marino, a member of our Board, indirectly controls shares in Rogram LLC.

Term Loan and Credit Facility Borrowings

On May 9, 2016, we entered into the Term Loan Agreement, under which we borrowed $50 million in aggregate principal amount pursuant to a five-year term loan. The borrowings under the Term Loan Agreement are secured by a lien on substantially all of our assets, including a pledge of the stock of certain of out wholly-owned subsidiaries.

Borrowings under the Term Loan Agreement must be repaid quarterly in the following manner: 2.5% of the initial aggregate borrowings are due and payable each quarter for the first loan year and 5.0% of the initial aggregate borrowings are due and payable each quarter during each subsequent loan year. At maturity, all outstanding amounts under the Term Loan Agreement will be due and payable.

The Term Loan Agreement requires us to maintain compliance with certain covenants, including leverage and fixed charge coverage ratio covenants. At June 30, 2017, we were in compliance with all covenants under the Term Loan Agreement.

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At our option, the Term Loan Agreement bears interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50%. As of June 30, 2017, the applicable interest rate was 3.72%, representing LIBOR plus the applicable margin of 2.50%. Interest expense under the Term Loan Agreement was $0.4 million and $0.7 million for the three and six months ended June 30, 2017, respectively, which includes non-cash interest expense related to the amortization of deferred issuance costs of $30,000 and $53,000 for the three and six months ended June 30, 2017, respectively.

Borrowings under the Term Loan Agreement may be prepaid at our option without penalty and must be repaid upon the occurrence of certain events, including certain events of default.

We were required to pay a one-time upfront administration and arrangement fee on the closing date. Thereafter, a non-refundable fee will be due and payable on each anniversary of the effective date of the Term Loan Agreement.  Total debt issuance costs paid in relation to the Term Loan Agreement were approximately $0.4 million.  The costs were recorded as a direct deduction from the carrying amount of the Term Loan and amortized as interest expense over the life of the Term Loan Agreement.

Capital Expenditures

We have made capital expenditures primarily for computer equipment and related software needed to host our websites, internal-use software development costs, as well as for leasehold improvements and other general purposes to support our growth. Our capital expenditures totaled $2.0 million and $2.6 million for the six month periods ended June 30, 2017 and 2016, respectively. A majority of our capital expenditures in the first half of 2017 were internal-use software and website development costs and, to a lesser extent, computer equipment and related software. We capitalized internal-use software and website development costs of $1.6 million and $1.5 million for the six months ended June 30, 2017 and 2016, respectively. We are not currently party to any purchase contracts related to future capital expenditures.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

There were no material changes to our contractual obligations and commitments described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Pronouncements

See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.

Forward Looking Statements

Certain information included in this Quarterly Report on Form 10-A may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included or referenced in this Quarterly Report on Form 10-Q that address activities, events or developments which we expect will or may occur in the future are forward-looking statements, including statements regarding the intent, belief or current expectations of the Company and members of our management team. The words “will,” “believe,” “intend,” “expect,” “anticipate,” “project,” “estimate,” “predict” and similar expressions are also intended to identify forward-looking statements. Such statements may include those regarding guidance on our future financial results and other projections or measures of our future performance; our expectations concerning market opportunities and our ability to capitalize on them; and the amount and timing of the benefits expected from acquisitions, new products or services and other potential sources of additional revenues. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. These statements speak only as of the date of this Quarterly Report on Form 10-Q and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those relating to: market acceptance of our products and services, including continued increased sales of our IT Deal Alert offerings and continued increased international growth; relationships with customers, strategic partners and employees; difficulties in integrating acquired businesses; changes in economic or regulatory conditions or other trends affecting the Internet, Internet marketing and advertising and IT industries; and other matters included in our filings with the Securities and Exchange Commission, including those detailed under Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the

29


 

year ended December 31, 2016. Actual results may differ materially from those contemplated by the forward-looking statements. We undertake no obligation to update our forward-looking statements to reflect future events or circumstances.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

We currently have subsidiaries in the United Kingdom, Hong Kong, Australia, Singapore, Germany and France. Additionally, we have a wholly foreign-owned enterprise formed under the laws of the People's Republic of China (“PRC”), and a variable interest entity in Beijing, PRC. Approximately 29% of our revenues for the three months ended June 30, 2017 were derived from customers with billing addresses outside of the United States and our foreign exchange gains/losses were not significant. We currently believe our exposure to foreign currency exchange rate fluctuations, including any impact of the United Kingdom’s decision to withdraw from the European Union, is financially immaterial and therefore have not entered into foreign currency hedging transactions. We continue to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in the future. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.

Interest Rate Risk

At June 30, 2017, we had cash, cash equivalents, and investments totaling $36.6 million. These amounts were invested primarily in money market accounts and municipal bonds and, to a lesser extent, government agency bonds, U.S. Treasury securities, and corporate bonds. The cash, cash equivalents, and investments were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.

Our exposure to market risk also relates to interest expense on borrowings under the Term Loan Agreement. At our option, the borrowings under the Term Loan Agreement bear interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect for such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50% (see Note 7 to the Consolidated Financial Statements). At June 30, 2017, there was $36.3 million of aggregate principal outstanding under the Term Loan Agreement.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company is required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of the Quarterly Report on Form 10-Q for the period ended June 30, 2017, management, under the supervision of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), conducted an evaluation of disclosure controls and procedures as of June 30, 2017. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control, that occurred during the second quarter of 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened litigation against us that could have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

Our business is subject to a number of risks, including those identified in Item 1A – “Risk Factors” of our 2016 Annual Report on Form 10-K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of June 30, 2017, there have been no material changes to the risk factors disclosed in our 2016 Annual Report on Form 10-K. We may disclose changes to any risk factors presented or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Sales of Unregistered Securities

None.

(b)

Use of Proceeds from Registered Securities

None.

(c)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

Period

 

Total Number of

Shares Purchased(1)

 

 

Average Price

Paid Per Share

 

 

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs(1)

 

 

Approximate Dollar

Value of Shares that

May Yet Be

Purchased Under the

Plans or Programs

 

April 1, 2017 – April 30, 2017

 

 

 

 

$

 

 

 

 

 

$

10,660,820

 

May 1, 2017 – May 31, 2017

 

 

16,544

 

 

$

9.09

 

 

 

16,544

 

 

$

10,510,430

 

June 1, 2017 – June 30, 2017

 

 

65,523

 

 

$

9.45

 

 

 

65,523

 

 

$

9,891,448

 

Total

 

 

82,067

 

 

$

9.37

 

 

 

82,067

 

 

$

9,891,448

 

 

(1)

In June 2016, our Board announced the approval of the Repurchase Program, which authorized us to purchase up to $20 million of shares of our common stock from time to time on the open market or in privately negotiated transactions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

TECHTARGET, INC.

 

(Registrant)

 

 

Date: August 9, 2017

By:

/s/ MICHAEL COTOIA

 

 

Michael Cotoia, Chief Executive Officer and Director

(Principal Executive Officer)

 

 

 

Date: August 9, 2017

By:

/s/ DANIEL NORECK

 

 

Daniel Noreck, Chief Financial Officer and Treasurer

(Principal Accounting and Financial Officer)

 

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Exhibit Index

 

Exhibit

No.

 

Description of Exhibit

 

 

 

  10.1

 

2017 Stock Option and Incentive Plan. Filed as Exhibit 10.1 to the Company's Form 8-K filed on June 20, 2017.

 

 

 

  10.2

 

Form of Restricted Stock Unit Agreement

 

 

 

  10.3

 

Form of Stock Option Agreement

 

 

 

  31.1

 

Certification of Michael Cotoia, Chief Executive Officer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of Daniel Noreck, Chief Financial Officer and Treasurer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certifications of Michael Cotoia, Chief Executive Officer of TechTarget, Inc. and Daniel Noreck, Chief Financial Officer and Treasurer of TechTarget, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document*

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document*

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document*

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document*

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document*

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document*

 

*

Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2017 and June 30, 2016, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and June 30, 2016 and (iv) Notes to Consolidated Financial Statements.

 

34