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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:1) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2014
For the transition period from to
Commission file number: 1-33472
TechTarget, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
275 Grove Street
Newton, Massachusetts
(Address of Principal Executive Offices)
04-3483216
(I.R.S. Employer
Identification No.)
02466
(Zip Code)
Registrant’s telephone number, including area code: (617) 431-9200
Securities registered pursuant to Section 12(b) of the Exchange Act:
None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes (cid:1) No
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 (cid:1)
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 (cid:1)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. (cid:1)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer
Non-Accelerated Filer
(cid:1)
(cid:1) (Do not check if a smaller reporting company)
Accelerated Filer
Smaller Reporting Company
(cid:1)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1) No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $171.8 million as of June 30,
2014 (based on a closing price of $8.82 per share as quoted by the Nasdaq Global Market as of such date). In determining the market value of non-affiliate
common stock, shares of the registrant’s common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
The registrant had 32,911,111 shares of Common Stock, $0.001 par value per share, outstanding as of February 27, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report incorporates by reference certain information from the registrant’s definitive proxy statement for the 2015 annual
meeting of shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120
days after the registrant’s fiscal year end of December 31, 2014.
TABLE OF CONTENTS
Table of Contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
2
3
16
27
27
27
27
28
30
33
50
50
73
73
76
76
76
76
76
76
76
77
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This Annual Report on Form 10-K contains forward-looking statements that are based on the beliefs of management and assumptions made by and
information currently available to them. The words “expect,” “anticipate,” “believe,” “may,” “estimate,” “intend” and similar expressions are intended
to identify such forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions including those described in “Risk
Factors,” which could cause our actual results to be materially different from results expressed or implied by such forward-looking statements.
PART I
Item 1.
Business
Overview
TechTarget, Inc. (“we” or “the Company”) is a Delaware corporation incorporated on September 14, 1999. We are a leading provider of specialized
online content and brand advertising that brings together buyers and sellers of corporate information technology (“IT”) products and services. We sell
customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific purchases. In addition,
we offer a number of data analytics solutions that help our customers more efficiently target their sales efforts.
IT professionals have become increasingly specialized, and rely on our network of over 150 websites, each of which focuses on a specific IT sector
such as storage, security or networking, for key decision support information tailored to their specific areas of responsibility. We work with our advertising
customers to develop customized marketing programs, often providing them with multiple offerings in order to target their desired audience of IT
professionals more effectively. Our service offerings address the lead generation, project opportunity information, and branding objectives of our
advertising customers. We complement our online offerings with targeted in-person events that enable advertisers to engage buyers directly at critical stages
of their decision-making process for IT purchases. The majority of our revenue for 2014, 2013 and 2012 was associated with lead generation advertising,
branding campaigns and IT Deal Alert™, which was launched in the fourth quarter of 2012.
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 content, registered members are able to conduct their pre-purchase research by accessing extensive vendor content
across our network of websites. Our network of websites also allows users to seamlessly interact and contribute content, which is highly valued by IT
professionals during their research process. As of December 31, 2014, we employed over 150 full-time editors who create original content tailored for
specific audiences, which we complement with content through our association with outside industry experts.
We have approximately 15.3 million registered members as of December 31, 2014. 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 and services. We have a broad
customer base and, during 2014, we delivered advertising campaigns for approximately 1,300 customers.
Please refer to Item 6, Selected Financial Data, for detailed information about our revenues, net income, total assets and other financial results.
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 2014, we did not see any meaningful
improvement in the IT market and many of our customers continue to be revenue-challenged. As a result, marketing budgets continue
to be under pressure and our growth was driven in large part by the return on the investments we made in our direct international
operations during the downturn as well as our data analytics suite of products, IT Deal Alert, which is driving market share gains for us.
While we will continue to invest in these growth areas, 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 flow.
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•
Customer Demographics. In the year ended December 31, 2014, our revenue from our top 12 global customers increased by
approximately 27%, our mid-sized customers (our next largest 100 customers) increased by approximately 15% and our smaller
customers increased by approximately 26%, over the prior year period. We believe that the growth in these segments was primarily
driven by international sales and our IT Deal Alert product portfolio, as opposed to any inherent upturn in the market. All three
customer segments continued to report a challenging environment, and this translated into our customers remaining cautious with their
marketing expenditures.
Available Information
Our website address is www.techtarget.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, and amendments to these reports, available free of charge through our website as soon as reasonably practicable after we electronically file such
material with, or furnish such material to, the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet website, at www.sec.gov, that
contains reports, proxy and information statements and other information regarding issuers that are filed electronically. Our Code of Business Conduct and
Ethics, and any amendments to our Code of Business Conduct and Ethics Corporate Governance Guidelines and Board Committee Charters, are also
available on our website. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report
on Form 10-K. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reading Reference Room at 100 F Street NE,
Washington, DC 20549, and the public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Industry Background
The ongoing shift in the media business from traditional print and broad-based advertising (i.e. television, radio, etc.) to targeted online advertising
has continued to grow. We believe the four major trends driving this shift continue to be:
•
Targeted Content Channels Lead to Greater Efficiency for Advertisers. The desire of advertisers to reach customers efficiently has led to the
development and proliferation of market-specific content channels throughout all forms of media. Targeted content channels increase
advertising efficiency by enabling advertisers to market specifically to the audience they are trying to reach. Content providers are finding new
ways, such as specialized cable television channels, magazines and events, to offer increasingly targeted content to their audience and
advertisers. The Internet has enabled even more market-specific content offerings, and the proliferation of market-specific websites provides
advertisers with efficient and targeted media to reach their customers.
•
The Internet Improves Advertisers’ Ability to Increase and Measure Return on Investment. Advertisers are increasingly focused on
measuring and improving their return on investment (“ROI”). Before the advent of Internet-based marketing, there were limited tools for
accurately measuring the results of marketing campaigns in a timely fashion. The Internet has enabled advertisers to track individual users and
their responses to their marketing programs. With the appropriate technology, vendors now have the ability to assess and benchmark the
efficacy of their online advertising campaigns cost-effectively and in real-time. As a result, advertisers are now increasingly demanding a
measurable ROI across all forms of media.
•
Technology Marketers and Sales Organizations are Increasingly Using Audience Data to Drive Decisions . The increasing prevalence of
online advertising and of marketing and sales automation systems means that advertisers have new opportunities to leverage data strategically
in their workflow. In the business technology market in particular, advertisers are in the early stages of making use of data to help them
determine prospect accounts that should be prioritized for marketing or sales follow-up.
•
The Internet is Increasingly Critical in Researching Large, Complex and Costly Purchases. The Internet has improved the efficiency and
effectiveness of researching purchases. The vast quantity of information available on the Internet, together with search engines and directories
that facilitate information discovery, enables potential purchasers to draw information from many sources, including independent experts, peers
and vendors, in an efficient manner. These benefits are most apparent in the research of complex and costly purchases which require
information from a variety of sources. By improving the efficiency of product research, the Internet enables potential purchasers to save
significant time and review a wider range of product selections most effectively.
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Corporate IT Purchasing
The trends toward targeted content channels, increased focus on ROI by advertisers and Internet-based product research are evident in the corporate
IT market. Over the past two decades, corporate IT purchases have grown in size and complexity. The corporate IT market is comprised of multiple, large
sectors, such as storage, security and networking. Each of these sectors can, in turn, be further divided into sub-sectors that contain products addressing the
areas of specialization within an enterprise’s IT environment. For example, within the multi-billion dollar storage sector, there are numerous sub-sectors
such as storage area networks, storage management software and backup software. Furthermore, the products in each sub-sector may service entirely
independent markets. For example, backup software for use in Windows ® environments can be distinct from that designed for use in Linux ® environments.
In view of the complexities, high cost and importance of IT decision-making, corporate IT purchasing decisions are increasingly being researched by
teams of functional experts with specialized knowledge in their particular areas, rather than by one central IT professional, such as a chief information
officer. The corporate IT purchasing process typically requires a lengthy sales cycle. The “sales cycle” is the sequence of stages that a typical customer goes
through when deciding to purchase a product or service from a particular vendor. Key stages of a sales cycle typically consist of a customer recognizing or
identifying a need; identifying possible solutions and vendors through research and evaluation; and finally, making a decision to purchase the product or
service. Through various stages of this sales cycle, IT professionals rely upon multiple inputs from independent experts, peers and IT vendors. Although
there is a vast amount of information available, the aggregation and validation of these inputs from various sources can be difficult and time-consuming.
The long sales cycle for corporate IT purchases, as well as the need for information support, requires substantial investment on the part of IT vendors,
which drives the significant marketing expenditures in the corporate IT market. In addition, technology changes at an accelerated pace and there are often
multiple solutions to a particular IT need. With each new product or product enhancement, IT vendors implement new advertising campaigns and IT
professionals must research new technologies.
The Opportunity
Corporate IT professionals are demanding specialized websites and events tailored to the sub-sectors of IT solutions that they purchase. Prior to
widespread Internet adoption, corporate IT buyers researching purchases relied largely on traditional IT media, consisting of broad print publications and
large industry trade shows. As technology, vendors and IT professionals have all become much more specialized, the Internet has emerged as a preferred
purchase research medium, a fact which has drastically reduced and improved research time.
IT advertisers seek high-ROI marketing platforms that provide access to the specific sectors of IT buyers that are aligned with the solutions the
advertisers seek to sell. Traditional IT media companies with historically print-based revenue models service a large audience with broad content. This
general approach minimizes the likelihood of a vendor reaching a buyer while he or she is actively researching the purchase of a solution that falls within
the vendor’s particular market sector. Although the Internet offers advertisers a superior means to reach IT buyers while they are conducting research, the
web properties operated by these traditional IT media companies offer online content and audiences that are in many cases derivative of their existing print
efforts. Without a more targeted marketing platform oriented to IT professionals’ need for decision support for specialized IT purchases, traditional IT
media companies have faced difficulty meeting the ROI needs of IT marketers.
Our Solution
Our specialized content strategy enables IT vendors to reach corporate IT professionals who are actively researching purchases in specific IT sectors.
Our online network of websites is complemented by conferences, seminars and other in-person events. IT professionals rely on our platform for decision
support information tailored to their specific purchasing needs. Our solution benefits from the following competitive advantages:
•
Large and Growing Community of Registered Members. We have approximately 15.3 million registered members as of December 31, 2014.
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 and services.
•
Strong Advertiser Relationships. Since our founding in 1999, we have developed a broad customer base. During 2014, we delivered advertising
campaigns for approximately 1,300 customers.
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•
Substantial Experience in Online Media. We have over 15 years of experience in developing our online media content, with a focus on
providing targeted information to IT professionals and a targeted audience to vendors. Our experience enables us to develop new online
properties rapidly and to acquire and efficiently integrate select properties that further serve IT professionals. We have also developed an
expertise in implementing integrated, targeted marketing campaigns designed to maximize the measurability of, and improvement in, ROI.
•
Proprietary Data on the Research Behavior of our Registered Members and Site Visitors . Through our Activity Intelligence™ product
platform, we collect information on millions of interactions that our members and visitors, and the companies that they are associated with,
have with the content on our websites and in our e-mails. Collection and analysis of this information allows us to increase the relevance of our
informational offerings to our members and improves our advertisers’ ROI by allowing us to deliver more qualified prospects.
•
•
•
Significant Brand Recognition Among Advertisers and IT Professionals. Our brand is well-recognized by advertisers who value our integrated
marketing capabilities and high-ROI advertising programs. At the same time, our sector-specific websites command brand recognition among
IT professionals, who rely on these websites because of their specificity and depth of content.
Favorable Search Engine Rankings. Due to our long history of using a targeted approach toward online publishing, our network of websites
has produced a large repository of archived content that allows us to appear on search result pages when users perform targeted searches on
search engines such as Google. We are successful in attracting traffic from search engines, which, in turn, increases our registered membership.
Proprietary Lead Management Technology. Our proprietary lead management technology enables IT vendors to prioritize and efficiently
manage the leads we provide, improving the efficacy of their sales teams and optimizing the ROI on their marketing expenditures with us.
Our solutions increase efficiency for both IT professionals and IT vendors, which facilitates the ability of IT professionals to find specific information
related to their purchase decisions, while enabling IT vendors to reach IT buyers who are actively researching specific solutions related to vendors’ products
and services. Our solutions benefit IT professionals and IT vendors in the following ways:
Benefits to IT Professionals
•
Provides Access to Integrated, Sector-Specific Content. Our websites provide IT professionals with sector-specific content from the three
fundamental sources they value in researching IT purchasing decisions: industry experts, peers and vendors. Our independent staff of editors
creates content specific to the sectors we serve and the key sub-sectors within them. This content is integrated with other content generated by
our network of third-party industry experts, member-generated content and content from IT vendors. The reliability, breadth and depth, and
accessibility of our content offering enable IT professionals to make more informed purchases.
•
Increases Efficiency of Purchasing Decisions. By accessing targeted and specialized information, IT professionals are able to research
important purchasing decisions more effectively. Our integrated content offering minimizes the time spent searching for and evaluating content
and maximizes the time available for consuming quality information. Furthermore, we provide this specialized, targeted content through a
variety of media that together address critical stages of the purchase decision process.
Benefits to IT Vendors
•
Targets Active Buyers Efficiently. Our highly targeted content attracts specific, targeted audiences that are actively researching purchasing
decisions. Using our registered member database and information we collect about their product interests, we are able to target further those
registered members most likely to be of value to IT vendors. Advertising to a targeted audience already engaged in a potential buying decision
minimizes advertiser expenditures on irrelevant audiences, increasing advertising efficiency.
•
Generates Measurable, High ROI. Our targeted online content offerings enable us to generate and collect valuable business information about
each user and his or her technology preferences. As registered users access content, we are able to build a profile of their technology interests,
and that of their company. When users access sponsored content, we are able to deliver both actionable leads and contextual intelligence to our
advertisers. As a result, our advertisers are able to better prioritize and follow up with the qualified sales leads we send them, which improves
the ROI on their advertising expenditures with us.
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•
Generates and Prioritizes Qualified Sales Leads. Our IT vendors also use our detailed member database and integrated advertising campaigns
to identify and market to the audience members they consider to have the highest potential value. Once the leads have been delivered, our
proprietary lead management technology enables customers to categorize, prioritize and market more effectively to these leads.
•
Maximizes Awareness and Shortens the Sales Cycle. As a leading distributor of vendor-provided IT white papers, webcasts, videocasts, virtual
events and podcasts, we offer IT vendors the opportunity to educate IT professionals during the research process, prior to any direct interaction
with vendor salespeople. By distributing proprietary content and reaching their target audiences via our platform, IT vendors can educate
audiences, demonstrate much of their product capabilities and proactively brand themselves as specific product leaders. As a result, an IT
professional is more knowledgeable about the vendor’s specifications and product by the time he or she engages with the vendor. This reduces
sales time and cost that would have been otherwise expended by the vendor’s direct sales force.
•
Reaches IT Professionals at Critical Stages of the Purchase Decision Process. Because our content platform includes both online and event
offerings, IT vendors can market to IT professionals at critical stages of the purchase decision process through multiple touch points. In
addition to targeting IT professionals as they conduct purchase research on our website, IT vendors can have face-to-face interactions with
qualified buyers seeking to finalize purchase decisions at our in-person events.
Our Strategy
Our goal is to deliver superior performance by enhancing our position as a leading provider of specialized content that connects IT professionals with
IT vendors in the sectors and sub-sectors that we serve. In order to achieve this goal, we intend to:
•
Continue to Develop Our Content Platform and Service Offerings. We intend to continue to launch additional websites and develop our
platform in order to capitalize on the ongoing shift from traditional broad-based media toward more focused online content that increases the
efficiency of advertising spending. We intend to capture additional revenues from existing and new customers by continuing to develop our
content and further segment it to deliver an increasingly specialized audience to the IT vendors who advertise across our media. We also intend
to continue to deliver a highly engaged and growing audience to advertisers and to develop innovative marketing programs.
•
Expand into Complementary Sectors. We intend to complement our current offerings by continuing to expand our business in order to
capitalize on strategic opportunities in existing, adjacent, or new sectors that we believe to be well-suited to our business model and core
competencies. Based on our experience, we believe we are able to capitalize rapidly and cost-effectively on new market opportunities.
•
Continue to Expand Our International Presence. We intend to continue to expand our reach into our addressable market by increasing our
presence in countries outside the United States. We have pursued this strategy by launching our own websites directed at users in the United
Kingdom in 2008, India and Spain in 2009, China and Australia in 2010, and Singapore in 2012. We also expanded by acquiring the Computer
Weekly and MicroScope online properties in the United Kingdom in 2011 and E-Magine Médias SAS, which we call LeMagIT, in France in
2012. In 2013, we launched German and Portuguese language websites as well as websites directed at users in Latin America. We expect to
further penetrate foreign markets by directly launching additional sector specific websites directed at these foreign locales and at additional
international markets and, if deemed appropriate, making strategic acquisitions and investments in overseas entities. During 2014,
approximately 30% of our total revenues were derived from international geo-targeted campaigns, where our target audience is outside North
America. We believe that our integrated product offering across regions continues to resonate with international marketers and is contributing
to our successful results. We plan on continuing to invest in these capabilities as we seek opportunities to increase our global reach.
•
Selectively Acquire or Partner with Complementary Businesses. We have used acquisitions in the past as a means of expanding our content and
service offerings, web traffic and registered members. Our acquisitions to date can be classified into three categories: content-rich blogs or
other individually published sites, typically generating less than one million dollars in annual revenues; early stage revenue sites, typically
generating between one and five million dollars in annual revenues; and later stage revenue sites, typically generating greater than five million
dollars in annual revenues. We intend to continue to pursue selected acquisition or partnership opportunities in our core markets and in adjacent
markets for products with similar characteristics.
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Platform & Content
Our integrated content platform consists of a network of websites that we complement with targeted in-person events. At critical stages of the
purchase decision process, these content offerings meet IT professionals’ needs for expert, peer and IT vendor information and provide a platform on which
IT vendors can launch targeted marketing campaigns that generate measurable, high ROI.
The diagram below provides a representation of the key market opportunities we address for our advertisers:
The TechTarget Universe: where serious technology buyers decide
Media Groups
Based upon the logical clustering of our users’ respective job responsibilities and the marketing focus of the products being advertised by our
customers, we currently categorize our content offerings to address the key market opportunities and audience extensions across nine distinct media groups.
Each of these media groups services a wide range of IT vendor sectors and sub-sectors and is driven by the key areas of IT professionals’ interests described
below:
•
Security. Every aspect of enterprise computing now depends on secure connectivity, data and applications. The security sector is constantly
growing to adapt to new forms of threats and to secure new technologies such as mobile devices, wireless networks and virtualized systems and
cloud computing solutions. Compliance regulations, cloud computing adoption, and highly publicized identity and intellectual property thefts
are driving interest and investment in increasingly sophisticated security solutions that supplement common “perimeter” security solutions such
as firewalls and antivirus software. Our online properties in this sector, which include SearchSecurity.com, SearchCloudSecurity.com,
SearchFinancialSecurity.com, and
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SearchMidMarketSecurity.com, offer navigable and structured guides on IT vendor and technology solutions in key sub-sectors such as
network security, intrusion defense, identity management and authentication, data and application security, security-as-a-service, cloud security
and security information management software.
•
•
Networking. Broadly defined, the networking market includes the hardware, software and services involved in the infrastructure and
management of both Enterprise and Carrier voice and data networks. As new sub-sectors of networking have emerged and grown in
importance, IT networking professionals have increasingly focused their investments in such technologies as VoIP, wireless and mobile
computing, social networking and collaboration, application performance, data center fabrics, convergence, software-defined networking
(“SDN”) and providing cloud services. Our online properties in this sector, which include SearchNetworking.com, SearchEnterpriseWAN.com,
SearchUnifiedCommunications.com, SearchMobileComputing.com, SearchSDN.com and SearchTelecom.com, aim to address the specialized
needs of these IT networking professionals by offering content targeted specifically to these emerging growth areas.
Storage. The storage sector consists of the market for disk storage systems and tape hardware and software that store and manage data. Growth
is fueled by trends inherent in the industry, such as the ongoing need to maintain and supplement data stores, and by external factors, such as
expanded compliance regulations and increased focus on disaster recovery solutions. Recent trends reflect an increased emphasis on solid state
storage and cloud storage. At the same time, established storage sub-sectors, such as backup and Storage Area Networks (“SAN”s) have been
invigorated by new technologies such as disk-based backup, continuous data protection, data deduplication and storage virtualization. Our
online properties in this sector, which include SearchStorage.com, SearchDataBackup.com, SearchSMBStorage.com,
SearchDisasterRecovery.com, SearchVirtualStorage.com, SearchCloudStorage.com, and SearchSolidStateStorage.com, address IT
professionals seeking solutions in key sub-sectors such as fibre channel SANs, solid state storage, virtualization IP & iSCSI SANs, Network
Attached Storage (“NAS”), backup hardware and software, and storage management software. The audience at our in-person Storage Decisions
conference is comprised almost exclusively of storage decision makers from within IT organizations. This event is supplemented by regional
seminars on storage topics.
•
Data Center and Virtualization Technologies. Data centers house the systems and components, such as servers, storage devices, routers and
switches, utilized in large-scale, mission-critical computing environments. A variety of trends and new technologies have reinvigorated the data
center as a priority among IT professionals. Technologies, such as blade servers, server virtualization, converged infrastructure and cloud
computing, have driven renewed investment in data center-class computing solutions. Server consolidation is a focus, driven by the decline in
large-scale computing prices relative to distributed computing models. These trends have put pressure on existing data center infrastructure and
are driving demand for solutions that address this. For example, the deployment of high-density servers has led to increased heat output and
energy consumption in data centers. Power and cooling have thus become a significant cost in IT budgets, making data center energy efficiency
a priority. Our key online properties in this sector provide targeted information on the IT vendors, technologies and solutions that serve these
sub-sectors. Our properties in this sector include SearchDataCenter.com, covering disaster recovery, power and cooling, mainframe and UNIX
® servers, systems management, and server consolidation; SearchEnterpriseLinux.com, focused on Linux migration and infrastructures;
Search400.com, covering mid-range computing and SearchCloudComputing.com and SearchAWS.com which cover private, public and hybrid
cloud infrastructure. SearchServerVirtualization.com covers the decision points and alternatives for implementing server virtualization, while
SearchVMware.com focuses on managing and building out virtual environments on the most widely-installed server virtualization platform.
We also cover servers, application and desktop solutions deployed in distributed computing environments. The dominant platform, Windows,
no longer represents an offering of discrete operating systems but rather a diverse computing environment with its own areas of specialization
around IT. As Windows servers have become more stable and scalable, they have taken share in data centers and currently represent one of the
largest server sub-sectors. Given the breadth of the Windows market, we have segmented our Windows-focused media based on IT
professionals’ infrastructure responsibilities and purchasing focus. Our online properties in this sector include SearchWindowsServer.com,
covering servers, storage, and systems management; SearchDomino.com and SearchExchange.com, each targeted toward senior management
for distributed computing environments. This network of sites provides resources and advice to IT professionals pursuing solutions related to
such topics as Windows backup and storage, server consolidation, and upgrade planning. SearchEnterpriseDesktop.com and LabMice.net focus
on the deployment and management of end-user computing environments. SearchConsumerization.com covers the IT management issues
surrounding the increasing deployment of personal technologies such as tablets and smartphones in the workplace. Combined with our two
properties that focus on server virtualization, SearchVirtualDesktop.com and BrianMadden.com, each focusing on desktop virtualization, gives
us a comprehensive offering addressing the fast-growing area of virtualization technologies. Our online offerings in this sector are
supplemented by in-person regional seminars. Our BriForum conferences focus on desktop virtualization and related technologies.
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•
CIO/IT Strategy. Our CIO/IT Strategy media group provides content targeted at Chief Information Officers (“CIOs”), and senior IT executives,
enabling them to make informed IT purchases throughout the critical stages of the purchase decision process. CIOs’ areas of interest generally
align with the major sectors of the IT market; however, CIOs increasingly are focused on the alignment between IT and their businesses’
operations. Data center consolidation, compliance, ITIL/IT service management, disaster recovery/business continuity, risk management and
outsourcing as well as including Software as a Service (“SaaS”) and cloud computing have all drawn the attention of IT executives who need to
understand the operational and strategic implications of these issues and technologies on their businesses. Accordingly, our targeted
information resources for senior IT executives focus on ROI, implementation strategies, best practices and comparative assessment of vendor
solutions related to these initiatives. Our online properties in this sector include SearchCIO.com, which provides CIOs in large enterprises with
strategic information focused on critical purchasing decisions; and SearchCompliance.com, which provides advice on IT-focused regulations
and standards to IT and business executives and other senior IT managers. The CIO/IT Strategy media group also includes online resources and
events targeted to IT decision makers in prominent vertical industries. SearchHealthIT.com provides strategic IT purchasing information and
advice to senior IT and clinical professionals in hospitals, medical centers, university health centers and other care delivery organizations, as
well as organizations in the life sciences sector.
•
Business Applications and Analytics. Our Business Applications and Analytics media group focuses on mission critical software such as
enterprise resource planning (“ERP”), databases and business intelligence, content management enterprise resource planning, and customer
facing applications such as customer relationship management (“CRM”) software for mid-sized and large companies. Because these
applications are critical to the overall success of the businesses that use them, there is a high demand for specialized information by IT and
business professionals involved in their purchase, implementation, and ongoing support. Our applications-focused properties in this sector
include SearchCRM.com, SearchOracle.com, SearchSAP.com, SearchFinancialApplications.com and SearchManufacturingERP.com. These
sites are leading online resources that provide this specialized information to support mission critical business applications such as CRM, sales
force automation, databases and ERP software. The information produced by these applications is seen as a corporate asset that is essential for
gaining competitive advantage through informed, data-driven decisions that can help improve operational efficiency, enable business agility,
and improve sales effectiveness and customer service. As a result, business intelligence and analytics have become pervasive as various
organizations increasingly rely on mission critical information to optimize their businesses. Our sites BeyeNETWORK.com,
SearchBusinessAnalytics.com, SearchDataManagement.com and SearchContentManagement.com, cover the business intelligence, data
management, content management, and collaboration disciplines associated with such initiatives. SearchCloudApplications.com focuses on
cloud-based or SaaS deployments of key business applications.
•
Application Architecture and Development. The application architecture and development sector is comprised of a broad landscape of tools and
languages that enable developers, architects and project managers to build, customize and integrate software for their businesses. Our
application architecture and development online properties focus on development in enterprise environments, the underlying languages such
as .NET, Java and XML as well as related application development tools and integrated development environments (“IDEs”). Several trends
have had a profound impact on this sector and are driving growth. The desire for business agility with more flexible and interoperable
applications architecture continues to propel interest in Service-Oriented Architecture (“SOA”) and Business Process Management (“BPM”).
Application integration, application testing and security, as well as AJAX and rich Internet applications are also key areas of continuing focus
for vendors and developers. Our online properties in this sector include TheServerSide.com, which hosts independent communities of
developers and architects; Ajaxian.com, which serves web developers of rich Internet applications and SearchWinDevelopment.com, which
serves Windows developers who use the .Net platform. SearchSoftwareQuality.com offers content focused on application testing and quality
assurance while SearchSOA.com and eBizQ.net serve Architects, IT Managers and Line of Business Executives who are interested in building
out service oriented architectures, BPM and working with related technologies.
•
Channel. Our Channel sites address the information needs of channel professionals—which we have classified as resellers, value added
resellers, solution providers, systems integrators, service providers, managed service providers, and consultants—in the IT market. As IT
professionals have become more specialized, IT vendors have actively sought resellers with specific expertise in the vendors’ sub-sectors. Like
IT professionals, channel professionals require more focused technical content in order to operate successful businesses in the markets in which
they compete. The resulting dynamics in the IT channel are
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well-suited to our integrated, targeted content strategy. Our online properties in this sector include SearchITChannel.com and
SearchCloudProvider.com. In addition to these websites, TechTarget channel media is able to profile channel professionals accessing
information on any website within the TechTarget Network. As channel professionals resell, service and support hardware, software and
services from vendors in a particular IT sector, the key areas of focus tend to parallel those for the sub-sectors addressed by our IT-focused
properties: for storage, backup, storage virtualization and network storage solutions such as fibre channel SANs, NAS, IP SANs; for security,
intrusion defense, compliance and identity management; for networking, wireless, network security and VoIP; for systems, consolidation,
cloud, converged infrastructure and server virtualization.
•
TechnologyGuide.com. We operate a portfolio of Internet content sites that provide product reviews, price comparisons and user forums for
technology products such as laptops, desktops and smartphones. Sites include NotebookReview.com™, Brighthand.com™ (covering
smartphones), TabletPCReview.com™, PrinterComparison.com, DesktopReview.com, DigitalCameraReview.com and TechnologyGuide.com,
which covers the personal technology segment as a whole. These sites represent an ideal complement to our enterprise-IT-focused TechTarget
sites because IT professionals purchase a large volume of laptops, desktops, smartphones and mobile computing devices. Thus, these sites offer
additional, complementary, in-depth content for our IT audience, as well as access for our advertisers to the broader audiences that visit these
sites for information.
User Generated Content and Vendor Content
ITKnowledgeExchange.com is a site devoted entirely to user generated content and represents our most concerted effort to date to facilitate peer-to-
peer interaction amongst our users via blogs and a Q&A section. The site incorporates a number of important social media features, such as the use of tag-
based navigation that allows users to self-classify content, and wiki-based Q&A functionality that allows them to collaborate with one another to respond to
technical questions and product recommendations submitted by other users.
Bitpipe.com and KnowledgeStorm.com are sites that we operate and that host vendor-provided content such as white papers, software downloads,
videocasts and webcasts. Maintaining centralized collections of this vendor content helps our users conduct pre-purchase research more easily and allows us
to maximize the ability of this content to be found by search engines. We provide contextually relevant inclusion of vendor content from Bitpipe.com and
KnowledgeStorm.com on the other sites in our network.
Media Offerings
We use both online and event offerings to provide IT vendors with numerous touch points to reach key IT decision makers and to provide IT
professionals with highly specialized content across multiple forms of media. We are experienced in assisting advertisers to develop custom advertising
programs that maximize branding and ROI. The following is a description of the services we offer:
Online Offerings
Core Online . Our network of websites forms the core of our content platform. Our websites provide IT professionals with comprehensive decision
support information tailored to their specific areas of responsibility and purchasing decisions. Through our websites, we offer a variety of online media
offerings to connect IT vendors to IT professionals.
Lead Generation . Our lead generation offerings allow IT vendors to maximize ROI by capturing qualified sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our lead generation campaigns offer the Activity Intelligence Dashboard, a technology
platform that gives our customers’ marketers and sales representatives a real-time view of their prospects, which includes insights on the research activities
of technology buying teams, including at an account level. Lead generation offerings may also include an additional service, TechTarget Re-Engage
(formerly called Nurture & Qualify), 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 lead generation offerings may also include the syndication of the following:
•
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. As part of a lead generation campaign, 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.
Branding . Our branding offerings provide IT vendors exposure to targeted audiences of IT professionals actively researching information related to
their products and services and include display advertising (including banners) and custom offerings. Display advertising can be purchased on specific
websites within our network and against specific audience or technology segments. Through an offering called Spoke™, we can also provide our
advertisers with brand exposure to our audience outside of our network of owned and operated websites, with the same types of targeting criteria available
within our network. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.
Custom Content Creation. In support of our advertisers’ lead generation programs, we will sometimes create white papers, case studies, webcasts,
videos or even entire microsites to our customers’ specifications through our Custom Media team. These customized content assets are then promoted to
our audience in the context of the advertisers’ lead generation programs. Our custom offerings allow customers to have content or entire microsites created
that focus on topics related to their marketing objectives and include promotion of these vehicles to our users, which includes IT professionals and buyers of
IT products.
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, advertisers get the
benefit of association with independently created content as well as access to qualified sales leads that are researching the topic.
List Rentals. We also offer IT vendors the ability to message registered members on topics related to their interests by renting our e-mail and postal
lists of registered members, which is organized using specific criteria such as company size, geography or job title.
Third Party Revenue Sharing Arrangements. We have revenue sharing arrangements with certain third parties to allow for the licensing of our online
content, for the renting of our database of opted-in e-mail subscribers and to allow advertising from customers of certain third parties to be made available
to our website visitors. In each of these arrangements we are paid a share of the resulting revenue.
IT Deal Alert . IT Deal Alert is a suite of services for advertisers that leverages the detailed purchase intent data that we collect about end-user IT
organizations. Through proprietary scoring methodologies, we use this data to help advertisers 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.
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IT Deal Alert: Qualified Sales Opportunities™ is a product that profiles specific in-progress purchase projects, including information on scope
and purchase considerations.
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IT Deal Alert: Priority Engine™ (a rebranding of Account Watch™, which we launched in 2014) is a subscription service powered by our
Activity Intelligence platform which integrates with salesforce.com. The service delivers information to allow marketers and sales personnel to
identify accounts actively researching new technology purchases, and to reach active prospects within those organizations that are relevant to
the purchase.
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IT Deal Alert: Deal Data™ is a customized solution aimed at sales intelligence and data scientist functions within our customers that makes our
Activity Intelligence data directly consumable by the customer’s internal applications. Deal Data is being introduced in the first quarter of
2015.
Events
Most of our media groups operate revenue-generating events. The majority of our events are free to IT professionals and are sponsored by IT
vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of
events: multi-day conferences, single-day seminars and custom events. Multi-day
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conferences provide independent content provided by our professionals to our attendees and allow vendors to purchase exhibit space and other sponsorship
offerings that enable interaction with the attendees. We also hold single-day seminars on various topics in major cities. These seminars provide independent
content provided by our professionals on key sub-topics in the sectors we serve, are free to qualified attendees, and offer multiple vendors the ability to
interact with specific, targeted audiences actively focused on buying decisions. Our custom events differ from our seminars in that they are exclusively
sponsored by a single IT vendor and the content is driven primarily by the sole sponsor.
Customers
We market to IT vendors targeting a specific audience within an IT sector or sub-sector. We maintain multiple points of contact with our customers in
order to provide support throughout a given organization and during critical stages of the sales cycle. As a result, individual customers often run multiple
advertising programs with us in order to reach discrete portions of our targeted audience. Our services are generally delivered under short-term contracts
that run for the length of a given advertising program, typically less than six months. Since our founding in 1999, we have developed a broad customer base
that now comprises approximately 1,300 active advertisers. During 2014, no single customer represented 10% or more of total revenue.
Please refer to Note 13 – Segment Information in the accompanying Notes to Consolidated Financial Statements for geographic data related to our
revenues and long-lived assets.
Sales and Marketing
Since our inception in 1999, we have maintained an internal direct sales department that works closely with existing and potential customers to
develop customized marketing programs that provide highly targeted access to IT professionals. We organize the sales force by the sector-specific media
groups that we operate and have a global accounts team that works with our largest advertisers. We believe that our sector-specific sales organization and
integrated approach to our service offerings allows our sales personnel to develop a high level of expertise in the specific sectors they cover and to create
effective marketing programs tailored to the customer’s specific objectives. As of December 31, 2014, our sales and marketing staff consisted of
approximately 312 people. The majority of our sales staff is located in our Newton, Massachusetts headquarters and our offices in San Francisco, California
and London, England.
We pursue a variety of marketing initiatives designed to support our sales activities by building awareness of our brand to IT vendors and positioning
ourselves as a “thought leader” in ROI-based marketing. These initiatives include purchasing online and event sponsorships in media vehicles that target the
technology advertising market, as well as engaging in direct communications with the database of advertising contacts we have built since inception.
Examples of our direct communications include selected e-mail updates on new product launches and initiatives. We also produce in-person events,
videocasts and white papers for technology marketers where we provide information on the latest best practices in the field of online marketing.
Additionally, we publish a blog for marketers which we use as a thought leadership vehicle to promote our ideas and viewpoints on a myriad of online
subjects.
Online User Acquisition
Our primary source of traffic to our websites is through non-paid traffic sources, such as our existing registered member base and organic search
engine traffic. Organic search engine traffic is also the primary source of new registered members for our sites. Because our sites focus on specific sectors
of the IT market, our content is highly targeted and is an effective means for attracting search engine traffic and resulting members. We also make user-
focused marketing expenditures designed to supplement our non-paid traffic and registered members. We employ a variety of online marketing vehicles
such as keyword advertising on the major search engines and targeted list rentals of opt-in e-mail subscribers from a variety of targeted media sources.
Technological Infrastructure
We have developed an expandable operations infrastructure using hardware and software systems from established IT vendors to maintain our
websites and online offerings. Our system hardware is co-located at an offsite data center. All of the critical components of the system are redundant,
allowing us to withstand unexpected component failure and to undergo maintenance and upgrades. Our infrastructure is scalable, enabling us to make
additions that fit into the existing environment as our system requirements grow based on traffic and member growth. Our critical data is copied daily to
backup tapes, which are sent to an off-site storage facility. We maintain a quality assurance process to constantly monitor our servers, processes and
network connectivity. We have implemented these various redundancies and backup systems in order to minimize the risk associated with damage from
fire, power loss,
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telecommunications failure, break-ins, computer viruses and other events beyond our control. We believe that continued development of our technological
infrastructure is critical to our success. We have made, and expect to continue to make, technological improvements in this infrastructure to improve our
ability to service our users and customers.
Competition
We compete for potential advertisers with a number of different types of companies, including: broad-based media outlets, such as television,
newspapers and business periodicals that are designed to reach a wide audience; general purpose portals and search engines; and offline and online
offerings of media companies that produce content specifically for IT professionals. The market for advertisers is highly competitive, and in each of the
sectors we serve as well as across the services we offer, our primary competitors are the media companies that produce content specifically for IT
professionals. Our primary competitors for advertisers, each of which possess substantial resources to compete, are United Business Media, QuinStreet,
International Data Group, and CBS Interactive/ CNet. In the online market we generally compete on the basis of target audience, quality and uniqueness of
information content, ease of use of our websites for IT professionals, and the quality and quantity of sales leads generated for advertisers. Our events
generally compete on the basis of the quality and integrity of our content offerings, the quality of our attendees, and the ability to provide events that meet
the needs of particular sector segments. As with the competition for advertisers, we compete for the users who comprise our target audiences primarily with
the media companies that produce content specifically for IT professionals such as United Business Media, QuinStreet, International Data Group, and CBS
Interactive/CNet. As we continue to expand internationally, we expect to compete with many of the competitors mentioned above, as well as with
established media companies based in particular countries or geographical regions.
User Privacy
We gather in-depth business information about our registered members who consent to provide us such information through one or more of the online
registration forms displayed on our websites. We also gather information about users of certain content on our websites by tracking their content
consumption or the content consumption of the companies they work for. We post our privacy policies on our websites so that our users can access and
understand the terms and conditions applicable to the collection and use of their information. Our privacy policies disclose the types of information we
gather, how we use it, and how a user can correct or change this information, including how a user can unsubscribe to our communications and those of our
partners. Our privacy policies also explain the circumstances under which we share a user’s information and with whom. Users who register for our
websites have the option of indicating specific areas of interest in which they are willing to receive offers via e-mail or postal mail; these offers contain
content created either by us or our third-party IT vendor customers. To protect our obligations to our users, we impose constraints that are generally
consistent with our privacy policies on the customers to whom we provide user data. Additionally, when we provide lists to third parties, including to our
advertiser customers, it is under contractual terms that are generally consistent with our obligations to users set forth in our privacy policies as well as
applicable laws and regulations.
Consumer Protection Regulation
General. Advertising and promotional activities presented to visitors on our websites are subject to federal and state consumer protection laws that
regulate unfair and deceptive practices. We are also subject to various other federal and state consumer protection laws, including the ones described below.
With respect to our non-U.S. business, we are also subject to the laws and regulations of various other jurisdictions in which we target users. With respect to
our non-U.S. business, we are also subject to the laws and regulations of various other jurisdictions in which we target users.
CAN-SPAM Act. The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, (the “CAN-SPAM Act”), became effective
on January 1, 2004. The CAN-SPAM Act regulates commercial e-mails and provides a right on the part of the recipient to request the sender to stop
sending messages, and establishes penalties for the sending of e-mail messages that are intended to deceive the recipient as to source or content. Under the
CAN-SPAM Act, senders of commercial e-mails (and other persons who initiate those e-mails) are required to make sure that those e-mails do not contain
false or misleading transmission information. Commercial e-mails are required to include a valid return e-mail address and other subject heading
information so that the sender and the Internet location from which the message has been sent are accurately identified. Recipients must be furnished with
an electronic method of informing the sender of the recipient’s decision not to receive further commercial e-mails. In addition, the e-mail must include a
postal address of the sender and notice that the e-mail is an advertisement. The CAN-SPAM Act may apply to the e-newsletters that our websites distribute
to registered members and to some of our other commercial e-mail communications. However, on May 12, 2008, the U.S. Federal Trade Commission (the
“FTC”) issued additional regulations related to the CAN-SPAM Act, including interpretations of such act that indicate that e-newsletters, such as those we
distribute to our registered members, will be
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exempt from most of the provisions of the CAN-SPAM Act. At this time, we are applying the applicable CAN-SPAM requirements to e-newsletters and all
other e-mail communications, and believe that our e-mail practices comply with the requirements of the CAN-SPAM Act.
Other Consumer Protection Regulation. The FTC and many state attorneys general are applying federal and state consumer protection laws to require
that the online collection, use and dissemination of data, and the presentation of web site content, comply with certain standards for notice, choice, security
and access. In many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities, and
courts may adopt these developments as law. In addition, on December 20, 2007, the FTC published for public comment proposed principles to address
consumer privacy issues that may arise from so-called “behavioral targeting” (i.e. the tracking of a user’s online activities in order to deliver advertising
tailored to his or her interests) and to encourage industry self-regulation for public content. On February 12, 2009, following public comment, the FTC
released a Staff Report with its revised principles for self-regulation of behavioral targeting. Although the FTC excluded from the principles both “first-
party” behavioral advertising and contextual advertising (each being the types of behavioral targeting activities in which we are currently primarily
engaged), with respect to other types of behavioral targeting that include the storage of more, and potentially sensitive, data or that collects information
outside of the “traditional Web site context” (such as through a mobile device or by an ISP), the FTC has stated that it will continue to evaluate self-
regulatory programs. Further, through a preliminary Staff Report published on December 1, 2010, the FTC indicated that it is considering regulations
regarding behavioral targeting which may include implementation of a more rigorous opt-in regime. An opt-in policy would prohibit businesses from
collecting and using information obtained through behavioral targeting activities from individuals who have not voluntarily consented. In 2012, the FTC
issued further clarifying guidance regarding consumer privacy and data collection with a particular focus on the mobile environment. A few states have also
introduced legislation that, if enacted, would restrict or prohibit behavioral advertising within the state. In the absence of a federal law pre-empting their
enforcement, such state legislation would likely have the practical effect of regulating behavioral advertising nationwide because of the difficulties behind
implementing state-specific policies or identifying the location of a particular consumer.
In addition, several foreign governmental bodies, including the European Union, the United Kingdom, France and Canada have regulations dealing
with the collection and use of personal information obtained from their citizens, some of which we may be subject to as a result of the expansion of our
business internationally. Regulations in these territories have focused on the collection, use, disclosure and security of information that may be used to
identify or that actually identifies an individual, such as an e-mail address or a name. Further, within the European Union, certain member state data
protection authorities regard IP addresses as personal information, and legislation adopted recently in the European Union and France requires informed
consent for the placement of a cookie on a user device. We believe that we are in compliance with the regulations that apply to us; however, such laws may
be modified and new laws may be enacted in the future.
We believe that we are operating our business in compliance with the regulations that apply to us. However, such laws may be modified or subject to
interpretation by governmental agencies or the courts, or, new laws may be enacted in the future, all of which could impact our business and results of
operations.
Intellectual Property
We regard our copyrights, domain names, trademarks, trade secrets and similar intellectual property as important to our success, and we rely upon
copyright, trademark and trade secrets laws, as well as confidentiality agreements with our employees and others, and protective contractual provisions, to
protect the proprietary technologies and content that we have developed. We pursue the registration of our material trademarks in the United States and
elsewhere. Currently, our TechTarget trademark and logo, as well as the KnowledgeStorm and certain other marks and logos, are registered federally in the
United States and selected foreign jurisdictions and we have applied for U.S. and foreign registrations for various other marks. In addition, we have
registered over 1,500 domain names that are or may be relevant to our business, including “www.techtarget.com,” “www.knowledgestorm.com,”
“www.bitpipe.com,” “www.technologyguide.com” and those leveraging the “search” prefix used in the branding of many of our websites. We also
incorporate a number of third-party software products into our technology platform pursuant to relevant licenses. Some of this software is proprietary and
some is open source. We use third-party software to maintain and enhance, among other things, the content generation and delivery, and support our
technology infrastructure. We are not substantially dependent upon these third-party software licenses, and we believe the licensed software is generally
replaceable, by either licensing or purchasing similar software from another vendor or building the software functions ourselves.
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Employees
As of December 31, 2014, we had 686 employees. Other than a small number of employees in the United Kingdom and France, none of our current
employees is represented by a labor union or is the subject of a collective bargaining agreement.
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 have their new product introductions, and the historical decrease in advertising and
events activity in summer months. Events revenue may vary depending on which quarters we produce the event, which may vary when compared to
previous periods. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of online
revenues, selling and marketing, product development, and general and administrative expenses as a percentage of revenue 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.
Item 1A.
Risk Factors
Our business is subject to various risks and uncertainties which may affect our business, our operating results and our share price, among other things.
Any of the following risks or uncertainties could adversely impact our business, financial condition and operating results, among other things.
Risks Relating to Our Business and Operations
Because we depend on our ability to generate revenues from the sale of advertising campaigns, fluctuations in advertising spending could have an
adverse effect on our operating results.
The primary source of our revenues is the sale of advertising campaigns to our customers. Our advertising revenues accounted for substantially
all of our total revenues for the twelve months ended December 31, 2014. We believe that advertising spending on the Internet, as in traditional media,
fluctuates significantly as a result of a variety of factors, many of which are outside of our control. These factors include:
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variations in expenditures by advertisers due to budgetary constraints;
the cancellation or delay of projects by advertisers;
the cyclical and discretionary nature of advertising spending;
general economic conditions, as well as economic conditions specific to the Internet and online and offline media industry; and
the occurrence of extraordinary events, such as natural disasters and international or domestic political and economic unrest.
Because all of our customers are in the IT industry, our revenues are subject to characteristics of the IT industry that can affect advertising spending by
IT vendors.
Because all of our clients are in the IT industry, the success of our business is closely linked to the health, and subject to market conditions, of
the IT industry. The IT industry is characterized by, among other things, volatile quarterly results, uneven sales patterns, short product life cycles, rapid
technological developments and frequent new product introductions and enhancements. As a result, our customers’ advertising budgets, which are often
viewed as discretionary expenditures, may increase or decrease significantly over a short period of time. Many of our customers have reassessed and will,
for the foreseeable future, be likely to continue to scrutinize their spending on advertising campaigns. Prior market downturns in the IT industry have
resulted in declines in advertising spending, which can cause longer sales cycles, deferral or delay of purchases by IT vendors and generally reduced
expenditures for advertising and related services. Our revenues and profitability depend on the overall demand for advertising services from our customers.
We believe that demand for our offerings has been in the past, and could be in the future, disproportionately affected by fluctuations, disruptions, instability
or downturns in the IT industry, which may cause customers and potential customers to exit the industry or delay, cancel or reduce any planned
expenditures for our advertising offerings. Any slowdown in the formation of new IT companies, or decline in the growth of existing IT companies, may
cause a decline in demand for our offerings.
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In addition, the advertising budgets of our customers may fluctuate as a result of:
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weakness in corporate IT spending, resulting in a decline in IT advertising spending, a continued trend that we have seen and that may
continue;
increased concentration in the IT industry as a result of consolidations, leading to a decrease in the number of current and prospective
customers, as well as an overall reduction in advertising;
reduced spending by combined entities following such consolidations; and
the timing of advertising campaigns around new product introductions and initiatives.
Our future growth will depend in large part on continued increased sales of our IT Deal Alert product suite.
In 2013, we began selling a new suite of products called IT Deal Alert, which is based on our Activity Intelligence analytics. The IT Deal Alert
product suite currently consists of Qualified Sales Opportunities and Account Watch, which was rebranded as Priority Engine in 2015. Our increase in
revenues in the year ended December 31, 2014, compared to the comparable period of 2013, was, in part, attributable to sales of IT Deal Alert products. We
expect that IT Deal Alert, as well as the expansion of our IT Deal Alert product offerings, will be major components of our future growth. The failure of our
IT Deal Alert products to meet anticipated sales levels, our inability to continue to expand successfully our IT Deal Alert product suite, or the failure of our
current or new IT Deal Alert products to achieve and then maintain widespread customer acceptance could have a material adverse effect on our business
and financial results. In addition, competitors may develop a service or application that is similar to our IT Deal Alert product suite, which could also result
in reduced sales for those product offerings.
Our revenues are primarily derived from short-term contracts that may not be renewed.
The primary source of our revenues is the sale of advertising to our customers, and we expect that this will continue to be the case for the
foreseeable future. Our advertising contracts are primarily short-term, typically six months or less, and are generally subject to termination without
substantial penalty by the customer at any time, generally with minimal notice requirements. We cannot assure you that our current customers will fulfill
their obligations under their existing contracts, continue to participate in our existing programs beyond the terms of their existing contracts or enter into any
additional contracts for new programs that we offer. In addition, our efforts to enter into longer term arrangements with customers for our IT Deal Alert
services may not be successful. If a significant number of advertisers or a few large advertisers decided not to continue advertising on our websites or
conducting or sponsoring events, we could experience a rapid decline in our revenues over a relatively short period of time.
If we are unable to deliver content and services that attract and retain a critical mass of users, our ability to attract advertisers may be affected, which
could in turn have an adverse effect on our revenues.
Our success depends on our continued ability to deliver original and compelling content and services to attract and retain users, as well as our
ability to garner a critical mass of users of our websites. Our user base is comprised of corporate IT professionals who demand specialized websites and
events tailored to the sectors of the IT products for which they are responsible and that they purchase. Our content and services may not continue to attract
and retain a critical mass of users necessary to attract advertisers and generate revenues consistent with our historical results and expectations of future
results. We also may not develop new content or services in a timely or cost-effective manner. Our ability to develop and produce this specialized content
successfully is subject to numerous uncertainties, including our ability to:
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anticipate and respond successfully to rapidly changing IT developments and preferences to ensure that our content remains timely and
interesting to our users;
attract and retain qualified editors, writers and technical personnel;
fund new development for our programs and other offerings;
successfully expand our content offerings into new platform and delivery mechanisms; and
promote and strengthen the brands of our websites and our name.
If we are not successful in maintaining and growing our user base through the deployment of targeted and compelling content, our ability to
retain and attract advertisers may be affected, which could in turn have an adverse effect on our revenues.
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We depend upon Internet search engines to attract a significant portion of the users who visit our websites, and if we were listed less prominently in
search result listings as a result of changes in the search engines’ algorithms or otherwise, our business and operating results would be harmed.
We derive a significant portion of our website traffic from users who search for IT purchasing content through Internet search engines, such as
Google, MSN, Bing and Yahoo!. A critical factor in attracting users to our websites is whether we are prominently displayed in response to an Internet
search relating to IT content. Search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the
particular Internet search engine. The algorithms determine the order of the listing of results in response to the user’s Internet search. From time to time,
search engines revise their algorithms. In some instances, these modifications may cause our websites to be listed less prominently in unpaid search results,
which will result in decreased traffic from search engine users to our websites. Our websites may also become listed less prominently in unpaid search
results for other reasons, such as search engine technical difficulties, search engine technical changes and changes we make to our websites. In addition,
search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and have decided not to list their websites in
search result listings at all. Although in certain cases, we could mitigate algorithm changes affecting our traffic with increased marketing expenditures. If
we are listed less prominently or not at all, in search result listings, traffic to our websites could decline, which could impact our operating results. Increased
marketing spend to increase site traffic could also impact our results of operations.
There are a number of risks associated with expansion of our business internationally that could adversely affect our business.
Approximately 22% of our revenues for the year ended December 31, 2014 were derived from customers with billing addresses outside of
North America. Additionally, approximately 30% of our revenues were derived from geo-targeted campaigns, which are campaigns that are targeted at
users who reside outside of North America. We have offices in the United Kingdom, France, Germany, Singapore and Australia, as well as operations in
China. We also publish websites in Spanish, French, German, Portuguese and Chinese, targeting users worldwide who speak those languages.
In addition to many of the same challenges we face domestically, there are additional risks and costs to doing business in international markets,
including:
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limitations on our activities in foreign countries where we have granted rights to existing business partners;
the degree to which our foreign-based customers transition from print to online advertising;
the adaptation of our websites and advertising programs to meet local needs;
our foreign-based competitors having greater resources and more established relationships with local advertisers;
more restrictive data protection regulation, which may vary by country and for which there may be little or no guidance;
more extensive labor regulation, which may vary by country;
difficulties in staffing and managing multinational operations;
difficulties in finding appropriate foreign licensees or joint venture partners;
distance, language and cultural differences in doing business with foreign entities;
foreign political and economic uncertainty;
less extensive adoption of the Internet as an information source and increased restriction on the content of websites;
currency exchange-rate fluctuations; and
potential adverse tax requirements.
As a result, we may face difficulties and unforeseen expenses in expanding our business internationally and, even if we attempt to do so, we
may be unsuccessful, which could harm our business, operating results and financial condition.
There are risks of doing business in China as a telecommunications company that include an inability to own a Chinese operating company.
There are substantial risks and uncertainties regarding the interpretation and application of the laws and regulations of the People’s Republic of
China, or PRC, including, but not limited to, the laws and regulations governing our business in the PRC, and the enforcement and performance of the
contractual arrangements between our wholly-owned subsidiary, TechTarget (Beijing) Information Technology Consulting Co., Ltd, or TTGT China, and
our affiliated Chinese entity, Keji Wangtuo (Beijing) Information Technology Co., Ltd, or Keji Wangtuo, and its shareholders. We are considered a foreign
person under PRC law. As a result, we are subject to PRC law limitations on foreign ownership of companies engaged in value-added telecommunications
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internet and advertising services. Accordingly, we operate our websites and our online advertising business in China through Keji Wangtuo, a company
wholly-owned by two citizens of the PRC; we have no equity ownership interest in Keji Wangtuo. Keji Wangtuo holds the licenses and approvals necessary
to operate our websites and online advertising business in China. Through our wholly-owned subsidiary, TTGT China, we have contractual arrangements
with Keji Wangtuo and its shareholders that allow us to substantially control and operate Keji Wangtuo and give us the economic benefit of those
operations. We cannot be sure that we will be able to enforce these contracts or that they will be as effective in exercising control over Keji Wangtuo as
direct ownership. Although we believe we are in compliance with current PRC regulations, we cannot be sure that the Chinese government would agree that
our operating and equity arrangements with Keji Wangtuo comply with Chinese law. If the Chinese government determines that we are not in compliance
with applicable law, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect
revenues, block our websites in China, require us to restructure our Chinese operations, impose additional conditions or requirements with which we may
not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that
could be harmful to our business in China.
Competition for advertisers is intense, and we may not compete successfully, which could result in a material reduction in our market share, the
number of our advertisers and our revenues.
We compete for potential advertisers with a number of different types of offerings and companies, including: broad-based media outlets, such
as television, newspapers and business periodicals that are designed to reach a wide audience; general purpose portals and search engines; and offline and
online offerings of media companies that produce content specifically for IT professionals, including International Data Group, United Business Media,
QuinStreet and CNet. Advertisers may choose our competitors over us not only because they prefer our competitors’ online and events offerings to ours but
also because advertisers prefer to utilize other forms of advertising offered by our competitors that are not offered by us and/or to diversify their advertising
expenditures. Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we have. They may also offer different pricing than we do which could be more attractive
to advertisers. Competitors have historically and may continue to respond to market conditions by lowering prices to try to attract our customers. As a
result, we could lose market share to our competitors in one or more of our businesses and our revenues could decline.
We may not innovate at a successful pace, which could harm our operating results.
Our industry is rapidly adopting new technologies and standards to create and satisfy the demands of users and advertisers. It is critical that we
continue to innovate by anticipating and adapting to these changes to ensure that our content-delivery, lead generation and IT Deal Alert products and
services remain effective and interesting to our users, advertisers and partners. In addition, we may need to make significant expenditures to achieve these
goals. If we fail to accomplish these goals, we may lose users and the advertisers that seek to reach those users, which could harm our operating results.
Existing and planned efforts to develop new products, including any subscription-based offerings, may be costly and ultimately not successful.
We may be unable to continue to build awareness of our brands, which could negatively impact our business and cause our revenues to decline.
Building and maintaining recognition of our brands is critical to attracting and retaining our user base. We intend to continue to build existing
brands and introduce new brands that will resonate with our targeted audiences. In order to promote our brands, we may find it necessary to increase our
marketing budget, hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining
brand loyalty among our clients. If we fail to promote and maintain our brands effectively, or incur excessive expenses attempting to promote and maintain
our brands, our business and financial results may suffer.
If we do not retain our key personnel, our ability to execute our business strategy will be adversely affected.
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our executive officers and key
management. Our management team has significant industry experience and would be difficult to replace. These individuals possess sales, marketing,
financial and administrative skills that are critical to the operation of our business. The competition for these employees is intense. The loss of the services
of one or more of our key personnel could have a material adverse effect on our business and operating results.
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We may not be able to attract, hire and retain qualified personnel cost-effectively, which could impact the quality of our content and services and the
effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.
Our success depends on our ability to attract, hire and retain qualified technical, editorial, sales and marketing, customer support, financial and
accounting and other managerial personnel at commercially reasonable rates. The competition for personnel in the industries in which we operate is intense.
Our personnel may terminate their employment at any time for any reason. Loss of personnel may also result in increased costs for replacement hiring and
training. If we fail to attract and hire new personnel or retain and motivate our current personnel, we may not be able to operate our businesses effectively
or efficiently, serve our customers properly or maintain the quality of our content and services. In particular, our success depends in significant part on
maintaining and growing an effective sales force. This dependence involves a number of challenges, including:
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the need to hire, integrate, motivate and retain additional sales and sales support personnel;
the need to train new sales personnel, many of whom lack sales experience when they are hired; and
competition from other companies in hiring and retaining sales personnel.
We may fail to identify or successfully acquire and integrate businesses, products and technologies that would otherwise enhance our service offerings
to our customers and users, and as a result our revenues may decline or fail to grow.
We have acquired, and in the future may acquire or invest in, complementary businesses, products or technologies. Acquisitions and
investments involve numerous risks including:
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difficulty in assimilating the operations and personnel of acquired businesses;
potential disruption of our ongoing businesses and distraction of our management and the management of acquired companies;
difficulty in incorporating acquired technology and rights into our offerings and services, which could result in additional expenses
and/or technical difficulties in delivering our product offerings;
potential failure to achieve additional sales and enhance our customer base through cross marketing of the combined company’s
services to new and existing customers;
potential detrimental impact to our pricing based on the historical pricing of any acquired business with common clients and the market
generally;
potential litigation resulting from our business combinations or acquisition activities; and
potential unknown liabilities associated with the acquired businesses.
Our inability to integrate any acquired business successfully, or the failure to achieve any expected synergies, could result in increased
expenses and a reduction in expected revenues or revenue growth. As a result, our revenues, results of operations or stock price could fluctuate or decline.
In addition, we may not be able to identify or successfully complete acquisitions, which could impact our ability to expand into complementary sectors in
the future.
General domestic and global economic, business or industry conditions and financial market instability may adversely affect our business, as well as
our ability to forecast financial results.
The U.S. and international economies have experienced inconsistent, unpredictable growth and a certain degree of instability, magnified at
times by factors including changes in the availability of credit, volatile business and consumer confidence and unemployment. These and other
macro-economic conditions have contributed to unpredictable changes in the global economy and expectations of future global economic growth. If the
economic climate in the United States and abroad remains as it is or deteriorates, our customers or potential customers could reduce or delay their purchases
of our offerings, which would adversely impact our revenues and our ability to sell our offerings, collect customer receivables and, ultimately, our
profitability.
Because all components of our budgeting and forecasting are dependent upon estimates of growth or contraction in the economy generally, and
the IT market specifically, it can be difficult for us to accurately estimate future income and expenditures. We cannot predict the duration of current
economic conditions or the duration or strength of an economic recovery in the U.S. or worldwide generally or in the IT industry or in any of its segments.
Further adverse changes may occur as a result of global, domestic or regional economic conditions, changing consumer confidence, unemployment,
declines in stock markets, or other factors affecting economic conditions generally. These changes may negatively affect the sales of our offerings, increase
exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase the risk of loss on investments. Any recent growth
we have experienced internationally would be negatively affected by any future global downturn.
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Risks Related to Data Privacy, Security and Intellectual Property Rights
We may have limited protection of our intellectual property rights, which others could infringe.
Our success and ability to compete are dependent in part on the strength of our proprietary rights, on the goodwill associated with our
trademarks, trade names and service marks, and on our ability to use United States and foreign laws to protect them. Our intellectual property includes,
among other things, our original content, our editorial features, logos, brands, domain names, the technology that we use to deliver our services, the various
databases of information that we maintain and make available by license, and the appearances of our websites. We claim common law protection on certain
names and marks that we have used in connection with our business activities. Although we have applied for and obtained registration of some of our marks
in the United States and other countries where we do business, we have not been able to obtain registration of all of our key marks in certain non-U.S.
jurisdictions due to prior registration or use by third parties employing similar marks. In addition to United States and foreign laws and registration
processes, we rely on confidentiality agreements with our employees and third parties and other protective contractual provisions to safeguard our
intellectual property.
Policing our intellectual property rights and identifying infringers worldwide is a difficult task, and even if we are able to identify infringers,
we may not be able to stop them from infringing our intellectual property. We cannot be certain that third-party licensees of our content will adequately
protect our proprietary rights. Intellectual property laws and our agreements may not be sufficient to prevent others from copying or otherwise obtaining
and using our content or technologies. In addition, others may develop non-infringing technologies that are similar or superior to ours. In seeking to protect
our marks, copyrights, domain names and other proprietary rights, we could face costly litigation and the diversion of our management’s attention and
resources.
Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is
still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our
trademarks and other proprietary rights. Any impairment in the value of these important assets could cause our stock price to decline.
We could be subject to claims from third parties based on the content on our websites created by us and third parties. These claims could result in costly
litigation, the payment of damages or the need to revise the way we conduct our business.
We could be subject to infringement claims from third parties, which may or may not have merit. Due to the nature of content published on our
online network, including content placed on our online network by third parties, and as a creator and distributor of original content and research, we face
potential liability based on a variety of theories, including defamation, negligence, copyright or trademark infringement, or other legal theories based on the
nature, creation or distribution of this information. Such claims may also include, among others, claims that by providing hypertext links to websites
operated by third parties, we are liable for wrongful actions by those third parties through these websites. Similar claims have been brought, and sometimes
successfully asserted, against online services. It is also possible that our users could make claims against us for losses incurred in reliance on information
provided on our networks. In addition, we could be exposed to liability in connection with material posted to our Internet sites by third parties. For example,
many of our sites offer users an opportunity to post comments and opinions that are not moderated. Some of this user-generated content may infringe on
third-party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Such claims, whether brought in the
United States or abroad, could divert management time and attention away from our business and result in significant cost to investigate and defend,
regardless of the merit of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to
pay substantial damages. These claims could also result in the need to develop alternative trademarks, content or technology or to enter into costly royalty
or licensing agreements. Our insurance may not adequately protect us against these claims. The filing of these claims may also damage our reputation as a
high quality provider of unbiased, timely analysis and result in client cancellations or overall decreased demand for our services. We may not have, in all
cases, conducted formal evaluations of our content, technology and services to determine whether they expose us to any liability of the sort described
above. As a result, we cannot be certain that our technology, offerings, services or online content do not or will not infringe upon the intellectual property or
other rights of third parties. If we were found to have infringed on a third party’s intellectual property rights or otherwise found liable for damages as a
result of such claims, the value of our brands and our business reputation could be impaired, and our business could suffer.
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Changes in laws and standards relating to communication, data collection and use, and the privacy of Internet users and other data could impair our
efforts to maintain and grow our audience and thereby decrease our advertising revenue.
We use e-mail as a significant means of communicating with our users. The laws and regulations governing the use of e-mail for marketing
purposes continues to evolve, and the growth and development of the market for commerce over the Internet may lead to the adoption of additional
legislation and/or changes to existing laws. If new laws or regulations are adopted, or existing laws and regulations are interpreted and/or amended or
modified to impose additional restrictions on our ability to send e-mail to our users or potential users, we may not be able to communicate with them in a
cost-effective manner. In addition to legal restrictions on the use of e-mail, Internet service providers and others typically attempt to block the transmission
of unsolicited e-mail, commonly known as “spam.” If an Internet service provider or software program identifies e-mail from us as “spam,” we could be
placed on a restricted list that would block our e-mail to users or potential users who maintain e-mail accounts with these Internet service providers or who
use these software programs. If we are unable to communicate by e-mail with our users and potential users as a result of legislation, blockage or otherwise,
our business, operating results and financial condition could be harmed.
We collect information from our users who register on our websites or for services, respond to surveys or, in some cases, view our content.
Subject to each user’s permission (or right to decline, which we refer to as an “opt-out”, a practice that may differ across our various websites, depending
on the applicable needs and requirements of different countries’ laws), we may use this information to inform our users of services that they have indicated
may be of interest to them. We may also share this information with our advertising clients for users who have elected to receive additional promotional
materials and have expressly or implicitly granted us permission to share their information with third parties. We also collect information on our users based
on their activity on our sites. The U.S. federal government and certain states have adopted or proposed limitations on the collection, distribution and use of
personal information of Internet users. Additionally, certain foreign jurisdictions, including the European Union, France, the United Kingdom and Canada,
have adopted legislation (including directives or regulations) that may increase the requirements for collecting, or limit our collection and use of,
information from Internet users in these jurisdictions. In addition, growing public concern about privacy, data security and the collection, distribution and
use of personal information has led to self-regulation of these practices by the Internet advertising and direct marketing industry, and to increased federal
and state regulation.
In addition, in May 2014, the Obama administration released a report that advocates a framework to address online consumer privacy. Among
other things, the report renews calls for privacy legislation based on a Consumer Privacy Bill of Rights. The proposed Consumer Privacy Bill of Rights
would notably allow consumers the right to exercise control over the collection and use of personal data, including the ability to access and correct personal
data, for such personal data to be collected and used in accordance with easily understandable privacy and security policies and expect the secure and
responsible handling of personal data. The Obama administration has asked the United States Department of Commerce to work with industry, privacy
advocates and other stakeholders to draft legislative text to implement the principles outlined in the White House report. Because many of the proposed
laws or regulations are in their early stages, we cannot yet determine the impact these regulations may have on our business over time. Although, to date,
our efforts to comply with applicable federal and state laws and regulations have not hurt our business, additional, more burdensome laws or regulations,
including more restrictive consumer privacy and data security laws, could be enacted or applied to us or our customers. Such laws or regulations could
impair our ability to collect user information that helps us to provide more targeted advertising to our users and detailed lead data to our advertising clients,
thereby impairing our ability to maintain and grow our audience and maximize advertising revenue from our clients. Additionally, the FTC and many state
attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the
presentation of website content, comply with certain standards for notice, choice, security and access. Courts may also adopt these developing standards. In
many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities. A few states have
also introduced legislation that, if enacted, would restrict or prohibit behavioral advertising within the state. In the absence of a federal law pre-empting
their enforcement, such state legislation would likely have the practical effect of regulating behavioral advertising nationwide because of the difficulties
behind implementing state-specific policies or identifying the location of a particular user. In the event of additional legislation in this area, our ability to
effectively target our users may be limited. We believe that we are in compliance with applicable consumer protection laws, but a determination by a state
or federal agency or court that any of our practices do not meet these laws and regulations could create liability to us, result in adverse publicity and affect
negatively our businesses. New interpretations of these standards could also require us to incur additional costs and restrict our business operations.
As we deploy new products, we will need to update our privacy policy to describe any relevant changes to our practices. Failure to do so could
give rise to federal or state enforcement actions or lawsuits that could materially affect our business. In addition, several foreign governmental bodies,
including the European Union, the United Kingdom, and Canada, have regulations dealing with the collection and use of personal information obtained
from their citizens. Regulations in these jurisdictions have
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focused on the collection, use, disclosure and security of information that may be used to identify or that actually identifies an individual, such as an e-mail
address or a name. Further, within the European Union, certain member state data protection authorities regard IP addresses as personal information, and
legislation in the European Union requires informed consent for the placement of a cookie on a user device. We believe that we are in material compliance
with such regulations as applicable to us; however, such regulations and laws may be modified and new laws may be enacted in the future. Further, data
protection authorities may interpret existing laws in new ways. Any such developments (or developments stemming from enactment or modification of
other laws) or the failure to anticipate accurately the application or interpretation of these laws could create liability to us, result in adverse publicity and
negatively affect our businesses.
United States and European lawmakers and regulators have recently expressed concern over the use of third party cookies or web beacons for
the purpose of online behavioral advertising, and efforts to address these uses may result in broader requirements that would apply to research activities,
including understanding our users’ Internet usage. Such actions may have a chilling effect on businesses that collect or use online usage information
generally or substantially increase the cost of maintaining a business that collects or uses online usage information, increase regulatory scrutiny and increase
the potential of class action lawsuits. In response to marketplace concerns about the usage of third party cookies and web beacons to track user behaviors,
the major browser applications have enabled features that allow the user to limit the collection of certain data. These developments could impair our ability
to collect user information that helps us provide more targeted advertising to our users. In addition, several browser applications, including Microsoft
Internet Explorer, Mozilla Firefox, Google Chrome and Apple Safari, contain tracking protection features and options that allow users to opt out of ad-
tracking cookies and in certain cases block behavioral tracking from specified websites. In the event users implement these tracking features and options,
they have the potential to affect our business negatively.
Increased exposure from loss of personal information could impose significant additional costs on us.
Many states and foreign jurisdictions in which we operate have enacted regulations requiring us to notify customers in the event that certain
customer information is accessed, or believed to have been accessed, without authorization. Certain regulations also require proscriptive policies to protect
against such unauthorized access. Such notifications can result in private causes of action being filed against us. Additionally, increasing regulatory
demands are requiring us to provide protection of personal information to prevent identity theft and the disclosure of sensitive information. Should we
experience a loss of protected data, efforts to regain compliance and address penalties imposed by such regulatory regimes could increase our costs.
Our business, which is dependent on centrally located communications and computer hardware systems, is vulnerable to natural disasters,
telecommunication and systems failures, terrorism and other problems, as well as disruption due to maintenance or high volume, all of which could
reduce traffic on our networks or websites and result in decreased capacity for advertising space.
Our operations are dependent on our communications systems and computer hardware, all of which are located in data centers operated by third
parties. These systems could be damaged by natural disasters, power loss, telecommunication failures, viruses, hacking and similar events outside of our
control. Our insurance policies have limited coverage levels for loss or damages in these events and may not adequately compensate us for any losses that
may occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients’ customers and
vendors, or cause us to postpone or cancel, or result in dramatically reduced attendance at, our events, which could adversely impact our revenues, costs and
expenses and financial position. We are predominantly uninsured for losses and interruptions to our systems or cancellations of events caused by terrorist
acts and acts of war.
Our ability to attract and maintain relationships with users, advertisers and strategic partners depends on the satisfactory performance,
reliability and availability of our Internet infrastructure. Our Internet advertising revenues relate directly to the number of advertisements and other
marketing opportunities delivered to our users. System interruptions or delays that result in the unavailability of Internet sites or slower response times for
users would reduce the number of advertising impressions and leads delivered. This could reduce our revenues as the attractiveness of our sites to users and
advertisers decreases. Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses
that may occur due to any failures or interruptions in our systems. Further, we do not have multiple site capacity for all of our services in the event of any
such occurrence.
In addition, our networks and websites must accommodate a high volume of traffic and deliver frequently updated information. They have
experienced, and may experience in the future, slower response times due to higher than expected traffic, or decreased traffic, for a variety of reasons. There
have been instances where our online networks as a whole, or our websites individually, have been inaccessible. Also, slower response times, which have
occurred more frequently, can result from general
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Internet problems, routing and equipment problems involving third-party Internet access providers, problems with third-party advertising servers, increased
traffic to our servers, viruses and other security breaches, many of which problems are out of our control. In addition, our users depend on Internet service
providers and online service providers for access to our online networks or websites. Those providers have experienced outages and delays in the past, and
may experience outages or delays in the future. Moreover, our Internet infrastructure might not be able to support continued growth of our online networks
or websites. Any of these problems could result in less traffic to our networks or websites or harm the perception of our networks or websites as reliable
sources of information. Less traffic on our networks and websites or periodic interruptions in service could have the effect of reducing demand for
advertising on our networks or websites, thereby reducing our advertising revenues.
Our networks may be vulnerable to unauthorized persons accessing our systems, viruses and other disruptions, which could result in the theft of our
proprietary information and/or disrupt our Internet operations making our websites less attractive and reliable for our users and advertisers.
We currently retain confidential information relating to our users in secure database servers. Although we observe security measures
throughout our operations, we may not be able to prevent individuals from gaining unauthorized access to these database servers, which could cause
intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate
proprietary information or cause disruptions in our service. We may be required to expend capital and other resources to protect our websites against
hackers. Our online networks could also be affected by computer viruses or other similar disruptive problems, and we could inadvertently transmit viruses
across our networks to our users or other third parties. Any of these occurrences could harm our business or give rise to a cause of action against us.
Providing unimpeded access to our online networks is critical to servicing our customers and providing superior customer service. Our inability to provide
continuous access to our online networks could cause some of our customers to discontinue purchasing advertising programs and services and/or prevent or
deter our users from accessing our networks. Our activities and the activities of third-party contractors involve the storage and transmission of proprietary
and personal information. Accordingly, security breaches could expose us to a risk of loss or litigation and possible liability. We cannot assure that
contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual
provisions as part of our agreements.
Our business depends on continued and unimpeded access to the Internet by us and our users. If government regulations relating to the Internet
change, Internet access providers may be able to block, degrade, or charge for access to certain of our products and services, which could lead to
additional expenses and the loss of customers and clients.
Our products and services depend on the ability of our users to access the Internet. Currently, this access is provided by companies that have
significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobile
communications companies, and government-owned service providers. Some of these providers have taken, or have stated that they may take measures,
including legal actions, that could degrade, disrupt, or increase the cost of user access to our advertisements or our third-party publishers’ advertisements by
restricting or prohibiting the use of infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our
offerings. Recently, the Federal Communications Commission (“FCC”) again adopted net neutrality rules intended, in part, to prevent network operators
from discriminating against legal traffic that transverse their networks. It is unclear whether or how these new rules may be subject to challenge or
preemption if the U.S. Congress passes new laws regarding net neutrality and the executive branch adopts these laws. In addition, as we expand
internationally, government regulations concerning the Internet, in particular net neutrality, may be nascent or non-existent. Within such a regulatory
environment, coupled with potentially significant political and economic power of local network operators, we could experience discriminatory or anti-
competitive practices that could impede our growth, cause us to incur additional expense or otherwise negatively affect our business. Such interference
could result in a loss of existing customers and clients, and increased costs, and could impair our ability to attract new customers and clients, thereby
harming our revenue and growth.
Risks Related to Our Financial Statements and General Corporate Matters
If we do not maintain proper and effective disclosure controls and procedures and internal controls over financial reporting, our ability to produce
accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’
views of us.
Ensuring that we have adequate disclosure controls and procedures, including internal financial and accounting controls and procedures, in
place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated
frequently. On an ongoing basis, both we and our independent auditors document and test our
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internal controls and procedures in connection with the requirements of Section 404 of the Sarbanes-Oxley Act and, as part of that documentation and
testing, identify areas for further attention and improvement. Implementing any appropriate changes to our internal controls may entail substantial costs in
order to modify our existing accounting systems, take a significant period of time to complete and distract our officers, directors and employees from the
operation of our business. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain
that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially
impair our ability to operate our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce
accurate financial statements may seriously affect our stock price.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to expand
our sales and marketing and service development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If
adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our sales and marketing and research and development
efforts or take advantage of acquisition or other opportunities, which could seriously harm our business and operating results. If we incur debt, the debt
holders would have rights senior to common stockholders to make claims on our assets and the terms of any debt could restrict our operations, including our
ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new
equity securities could have rights senior to those of our common stock. Any debt financing is likely to have financial and other covenants that could have
an adverse impact on our business if we do not achieve our projected results. Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our
stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
The impairment of a significant amount of goodwill and intangible assets on our balance sheet could result in a decrease in earnings and, as a result,
our stock price could decline.
We have acquired assets and businesses over time, some of which have resulted in the recording of a significant amount of goodwill and/or
intangible assets on our financial statements. We had approximately $94.0 million of goodwill and $3.0 million of net intangible assets as of December 31,
2014. The goodwill and/or intangible assets were recorded because the fair value of the net tangible assets acquired was less than the purchase price. We
may not realize the full value of the goodwill and/or intangible assets. As such, we evaluate goodwill and other intangible assets with indefinite useful lives
for impairment on an annual basis or more frequently if events or circumstances suggest that the asset may be impaired. We did not have any intangible
assets with indefinite lives as of December 31, 2014. We evaluate other intangible assets subject to amortization whenever events or changes in
circumstances indicate that the carrying amount of those assets may not be recoverable. If goodwill or other intangible assets are determined to be impaired,
we will write off the unrecoverable portion as a charge to our earnings. If we acquire new assets and businesses in the future, as we intend to do, we may
record additional goodwill and/or intangible assets. The possible write-off of the goodwill and/or intangible assets could negatively impact our future
earnings and, as a result, the market price of our common stock could decline.
The trading value of our common stock may be volatile and decline substantially.
The trading price of our common stock may be volatile and could be subject to wide fluctuations in response to various factors, some of which
are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:
•
•
•
•
•
•
•
•
our operating performance and the operating performance of similar companies;
the overall performance of the equity markets;
announcements by us or our competitors of acquisitions, business plans, commercial relationships or new product or service offerings;
threatened or actual litigation;
changes in laws or regulations relating to the provision of Internet content;
any change in our board of directors or management;
publication of research reports about us, our competitors or our industry, or positive or negative recommendations or withdrawal of
research coverage by securities analysts;
our sale of common stock or other securities in the future;
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•
•
large volumes of sales of our shares of common stock by existing stockholders; and
general political and economic conditions.
In addition, the stock market in general, and historically the market for Internet-related companies in particular, has experienced price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation
has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such
litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources and harm our business, operating results
and financial condition.
Our full year and quarterly operating results are subject to fluctuations, and these fluctuations may adversely affect the trading price of our common
stock.
We have experienced fluctuations in our full year and quarterly revenues and operating results. Our revenues and operating results may
fluctuate from quarter to quarter due to a number of factors described in this Risk Factors section, many of which are outside of our control. Specifically,
our results could be impacted quarter by quarter by changes in the spending priorities and advertising budget cycles of customers; the addition or loss of
customers; the addition of new sites and services by us or our competitors; and seasonal fluctuations in advertising spending, based on product launch
schedules, annual budget approval processes for our customers and the historical decrease in advertising and events activity in the summer months. Due to
the foregoing as well as other risks described in this Risk Factors section, our results of operations in one or more quarters may fall below the expectations
of investors and/or securities analysts. In such an event, the trading price of our common stock is likely to decline.
Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.
Various provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy
contest or change of control. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a
higher stock price than the then-current market price for our common stock. Among other things, our certificate of incorporation and bylaws:
•
•
•
•
•
authorize our board of directors to issue preferred stock with the terms of each series to be fixed by our board of directors, which could
be used to institute a “poison pill” that would work to dilute the share ownership of a potential hostile acquirer, effectively preventing
acquisitions that have not been approved by our board;
divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year;
permit directors to be removed only for cause;
prohibit action by written consent of our stockholders; and
specify advance notice requirements for stockholder proposals and director nominations. In addition, with some exceptions, the
Delaware General Corporation Law restricts or delays mergers and other business combinations between us and any stockholder that
acquires 15% or more of our voting stock.
Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the trading price of
our common stock could decline significantly. A large portion of our outstanding shares of common stock is held by our officers, directors and significant
stockholders. Our largest stockholder is a complex of venture capital funds, which are structured to have a finite life. As these venture capital funds
approach or pass the respective terms of the fund, the decision to sell or hold our stock may be based not only on the underlying investment merits of our
stock but also on the requirements of their internal fund structure. Our directors, executive officers and significant stockholders beneficially own
approximately 11.5 million shares of our common stock, which represents 36% of our outstanding shares as of December 31, 2014. If these additional
shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline substantially.
A limited number of stockholders have the ability to influence the outcome of director elections and other matters requiring stockholder approval.
Our directors, executive officers and significant stockholders beneficially own approximately 36% of our outstanding common stock. These
stockholders, if they act together, could exert substantial influence over matters requiring approval by our
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stockholders, including the election of directors, the amendment of our certificate of incorporation and bylaws and the approval of mergers or other business
combination transactions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be
taken even if they are opposed by other stockholders.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
In August 2009, we entered into an agreement to lease approximately 87,875 square feet of office space in Newton, Massachusetts. The lease
commenced in February 2010 and has a term of 10 years. In November 2010, we signed an amendment to the Newton lease for approximately 8,400 square
feet of additional space beginning in late March 2011. We also have leases for several sales offices located in other parts of the United States and for our
international subsidiaries. We do not own any real property. We believe that our leased facilities are, in general, in good operating condition and adequate
for our current operations and that additional leased space can be obtained if needed.
Item 3.
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. On January 6, 2012, the Company filed Petitions under Formal Procedure
with the Massachusetts Appellate Tax Board in connection with the classification of the Company’s wholly-owned subsidiary, TechTarget Securities
Corporation, and assessments made by the Massachusetts Department of Revenue, as described in Note 9 in the accompanying Notes to Consolidated
Financial Statements. A trial took place on April 29, 2014; no decision has been rendered as of the date of this report.
Item 4.
Mine Safety Disclosures
Not applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the Nasdaq Global Market under the trading symbol “TTGT”. The following table sets forth the high and low sales
prices of our common stock, as reported by the Nasdaq Global Market, for each quarterly period in 2014 and 2013:
2014
Quarter ended March 31, 2014
Quarter ended June 30, 2014
Quarter ended September 30, 2014
Quarter ended December 31, 2014
2013
Quarter ended March 31, 2013
Quarter ended June 30, 2013
Quarter ended September 30, 2013
Quarter ended December 31, 2013
High
Low
$ 7.41
$ 9.00
$ 9.11
$ 11.53
$ 5.71
$ 4.90
$ 5.46
$ 7.10
$ 6.35
$ 6.14
$ 6.79
$ 8.50
$ 4.19
$ 4.00
$ 4.31
$ 4.82
The closing sale price of our common stock, as reported by the Nasdaq Global Market, was $12.14 on February 27, 2015.
Holders
As of February 27, 2015 there were approximately 110 stockholders of record of our common stock based on the records of our transfer agent.
Dividends
We did not declare or pay any cash dividends on our common stock during the two most recent fiscal years. We currently intend to retain earnings, if
any, to fund the development and growth of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Our
payment of any future dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial
condition, operating results, cash needs and growth plans.
Equity Compensation Plan Information
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under “Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters” in Item 12 below.
Stock Performance Graph
The following graph compares the cumulative total return to stockholders of our common stock for the period from December 31, 2009 to
December 31, 2014, to the cumulative total return of the Russell 2000 Index and the S&P 500 Media Industry Index for the same period. This graph
assumes the investment of $100.00 on December 31, 2009 in our common stock, the Russell 2000 Index and the S&P 500 Media Industry Index and
assumes any dividends are reinvested.
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COMPARATIVE STOCK PERFORMANCE
Among TechTarget Inc.,
the Russell 2000 Index and
S&P 500 Media Industry Index
* $100 invested on 12/31/09 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2015 Russell Investment Group. All rights reserved.
TechTarget Inc.
Russell 2000
S&P 500 Media Industry
12/09 12/10 12/11 12/12 12/13 12/14
100.00 140.85 103.73 98.58 121.85 201.95
100.00 126.86 121.56 141.43 196.34 205.95
100.00 124.31 133.54 184.03 277.85 315.23
The information included under the heading “Stock Performance Graph” in Item 5 of this Annual Report on Form 10-K is “furnished” and not “filed”
and shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Securities
Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Securities Act of 1934, as amended.
Issuer Purchases of Equity Securities
The following table provides information about purchases by the Company during the quarter ended December 31, 2014 of equity securities that are
registered by the Company pursuant to Section 12 of the Exchange Act.
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Issuer Purchases of Equity Securities
Period
October 1, 2014 – October 31, 2014
November 1, 2014 – November 30, 2014
December 1, 2014 – December 31, 2014
Total(2)
Total Number of
Shares Purchased (1)
27,251
212,451
1,000,000
1,239,702
Average Price
Paid Per Share
8.89
$
10.60
$
9.80
$
9.92
$
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(1)
27,251 *
212,451 *
1,000,000
1,239,702
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
17,114,205
$
14,861,191
$
5,064,191
$
5,064,191
$
(1) On August 5, 2014, the Board of Directors announced the approval of a Stock Repurchase Program (the “2014 Program”), which authorized the
Company to purchase up to $20 million of shares of its common stock from time to time on the open market or in privately negotiated transactions.
(2) All shares were repurchased under the 2014 Program. Please refer to Note 11 – Stockholders’ Equity in the accompanying Notes to Consolidated
Financial Statements for further information related to our Common Stock Repurchase Program.
Price excludes commission of approximately $0.02 per share.
*
Item 6.
Selected Financial Data
The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes
thereto included in Item 8 of this Form 10-K to fully understand factors that may affect the comparability of the information presented below.
2014
Years Ended December 31,
2011
2012
(in thousands, except per share data)
2013
2010
Consolidated Results of Operations Data:
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online(1)
Events(1)
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing(1)
Product development(1)
General and administrative(1)(4)
Depreciation
Amortization of intangible assets
Restructuring charge
Total operating expenses
Operating income (loss)
Interest and other (expense) income, net(4)
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per common share(2):
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other Data:
Adjusted EBITDA (unaudited)(3)
$ 97,607 $ 79,709 $ 88,192 $ 92,303 $ 82,330
12,679
8,596
95,009
106,203
11,799 13,195
105,498
99,991
8,787
88,496
24,629
3,418
28,047
78,156
23,362
3,771
27,133
61,363
23,513
4,301
27,814
72,177
22,373
4,765
27,138
78,360
20,402
4,313
24,715
70,294
42,836
7,161
14,878
4,060
1,762
—
70,697
7,459
(333 )
7,126
36,920
6,715
13,916
3,823
2,223
—
63,597
(2,234 )
(260 )
(2,494 )
36,718
7,521
13,112
3,279
3,351
—
63,981
8,196
13
8,209
39,586
7,688
13,536
2,759
3,976
384
67,929
10,431
(87 )
10,344
37,291
8,661
15,468
2,389
4,523
—
68,332
1,962
114
2,076
3,045
3,258
4,185
$ 4,081 $ (1,837 ) $ 4,024 $ 4,689 $ (1,182 )
5,655
(657 )
$
$
0.12 $ (0.05 ) $ 0.10 $
0.12 $ (0.05 ) $ 0.10 $
0.12 $ (0.03 )
0.12 $ (0.03 )
33,010
34,641
37,886
37,886
40,211
40,910
38,532
40,567
42,771
42,771
$ 21,459 $ 9,598 $ 20,093 $ 25,417 $ 19,875
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Consolidated Balance Sheet Data:
Cash, cash equivalents and investments
Total assets
Total liabilities
Treasury stock
Total stockholders’ equity
(1) Amounts include stock-based compensation expense as follows:
Cost of online revenue
Cost of events revenue
Selling and marketing
Product development
General and administrative
Total
2014
2013
As of December 31,
2012
(in thousands)
2011
2010
$ 38,183 $ 33,772 $ 76,340 $ 63,221 $ 50,134
$ 177,484 $ 176,982 $ 220,192 $ 209,187 $ 193,758
$ 21,638 $ 19,920 $ 20,878 $ 19,512 $ 19,898
$ (98,851 ) $ (83,862 ) $ (35,810 ) $ (35,343 ) $ (35,343 )
$ 155,846 $ 157,062 $ 199,314 $ 189,675 $ 173,860
Years Ended December 31,
2010
8
2013
2014
2011
2012
(in thousands)
$ 116 $ 173 $ 202 $ 273 $ 173
87
3,287 2,751 2,888 4,713 6,380
129 212 265 443
520
3,792 2,431 1,894 1,949 3,841
$ 7,332 $ 5,585 $ 5,267 $ 7,469 $ 11,001
91
18
18
(2) Basic and diluted net income (loss) per common share is computed by dividing the net income (loss) applicable to common stockholders by the basic
and diluted weighted-average number of common shares outstanding for the fiscal period. See Note 2 of our “Notes to Consolidated Financial
Statements.”
(3) The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented and is unaudited:
Net income (loss)
Interest and other expense (income), net
Provision for (benefit from) income taxes
Depreciation
Amortization of intangible assets
Amortization of purchase price adjustment for earnouts
EBITDA
Stock-based compensation
Secondary offering costs
Restructuring charge
Adjusted EBITDA
2014
2010
2011
2013
87
Years Ended December 31,
2012
(in thousands)
$ 4,081 $ (1,837 ) $ 4,024 $ 4,689 $ (1,182 )
(114 )
(13 )
5,655 3,258
4,185
2,759 2,389
3,279
3,976 4,523
3,351
398 —
—
8,874
14,826
13,589
11,001
5,267
7,332
—
—
538
—
—
—
$ 21,459 $ 9,598 $ 20,093 $ 25,417 $ 19,875
260
333
3,045
(657 )
4,060 3,823
1,762 2,223
201
308
4,013
5,585
—
—
17,564
7,469
—
384
Adjusted EBITDA is a non-GAAP financial measure used by management when reviewing our performance. EBITDA represents net income (loss) before
interest and other expense (income) net, provision for (benefit from) income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA as
further adjusted to exclude stock-based compensation, secondary offering costs and restructuring charges. We present Adjusted EBITDA as a supplemental
performance measure because we believe it facilitates operating performance comparisons from period to period and company to company by backing out
potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of
changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), acquisition-
related charges (such as amortization of intangible assets and earnouts) and the impact of non-cash stock-based compensation expense costs. Because
Adjusted EBITDA facilitates internal comparisons of operating performance on a more consistent basis, we also use Adjusted EBITDA in measuring our
performance relative to that of our competitors. We also use Adjusted EBITDA in connection with our compensation of our executive officers and senior
management. Adjusted EBITDA is not a measurement of our financial performance under Generally Accepted Accounting Principles (“GAAP”) and
should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with
GAAP
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or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity. We understand that although Adjusted EBITDA is
frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•
•
•
•
•
Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our
debts;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
(4) Beginning in the third quarter of 2014, we changed the presentation of transactional gains and losses arising from the impact of currency exchange
rate fluctuations on transactions in foreign currency that is different from the local functional currency in order to better reflect the non-operating
nature of these gains and losses, and are now including them in Other Income (Expense) on the Consolidated Statements of Comprehensive Income
(Loss) as well as our Adjusted EBITDA reconciliation. Previously, these gains and losses were included in our operating expenses as General and
Administrative expense. Amounts in the prior periods’ financial statements have been reclassified to conform to the current presentation. In the
twelve months ended December 31, 2013, this resulted in an increase to Other Expense and a decrease in General and Administrative expense equal
to $0.2 million and for the twelve months ended December 31, 2012, this resulted in a decrease to Other Income and a decrease in General and
Administrative expense amounting to $0.1 million. In the twelve months ended December 31, 2011, this resulted in an increase to Other Expense and
a decrease in General and Administrative expense equal to $0.1 million and for the twelve months ended December 31, 2010, this resulted in a
decrease to Other Income and a decrease in General and Administrative expense amounting to $0.1 million.
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Item 7.
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 Annual Report on Form 10-K. 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 and elsewhere in this Annual Report on Form 10-K, particularly under
the heading “Risk Factors.”
Overview
Background
We are a leading provider of specialized online content and brand advertising that brings together buyers and sellers of corporate information
technology (“IT”) products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively
researching specific purchases. In addition we offer a number of data analytics solutions that help our customers more efficiently target their sales efforts.
IT professionals have become increasingly specialized, and rely on our network of over 150 websites, each of which focuses on a specific IT sector
such as storage, security or networking, for key decision support information tailored to their specific areas of responsibility. We work with our advertising
customers to develop customized marketing programs, often providing them with multiple offerings in order to target their desired audience of IT
professionals more effectively. Our service offerings address the lead generation, project opportunity information, and branding objectives of our
advertising customers. In the year ended December 31, 2014, lead generation and branding remained our primary sources of revenue, while project
opportunity information, driven by growth in our IT Deal Alert™ products, contributed approximately 17% of online revenue as compared with
approximately 5% for the same period in 2013.
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 content, registered members are able to conduct their pre-purchase research by accessing extensive vendor content
across our network of websites. Our network of websites also allows users to seamlessly interact and contribute content, which is highly valued by IT
professionals during their research process.
We have approximately 15.3 million registered members as of December 31, 2014. 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. Since our founding in 1999, we
have developed a broad customer base. During 2014, we delivered advertising campaigns for approximately 1,300 customers. No customer represented
10% or more of total revenue during 2014.
Executive Summary
Our revenue for the year ended December 31, 2014 grew approximately 20%, to $106.2 million, when compared with the same period in 2013. This
growth was primarily driven by two factors: continued growth of international revenue from our online products and further adoption of our new IT Deal
Alert offering. Both of these factors remain key areas of focus for our management team, and we believe they may contribute to our continued revenue
growth. IT Deal Alert is a suite of services that leverages our proprietary audience activity data to enable us to identify purchase intent among our audience
of IT professionals. At the same time, our international business is benefitting from the continued shift in adoption of online tools from traditional print
sources by IT professionals in overseas markets.
During 2014, we made further progress on our strategy to grow our business and increase the reach of our offerings by continuing to execute on our
strategic plans for the roll-out of IT Deal Alert and the continued expansion of our direct international capabilities.
We ended 2014 with Adjusted EBITDA of $21.5 million, which is up 124% from 2013. This growth is primarily driven by the increased revenue as
described above. Adjusted EBITDA, a non-GAAP financial measure, is described further in Item 6, Selected Financial Data.
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Sources of Revenues
We sell advertising 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’ 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 services are generally delivered under short-term contracts that run for the length of a given
advertising program, typically less than six months. In the year ended December 31, 2014, lead generation and branding remained our primary sources of
revenue, while project opportunity information, driven by growth in our IT Deal Alert products, contributed approximately 16% of total revenue as
compared with approximately 4% for the same period in 2013.
The majority of our revenue is derived from the delivery of our online offerings. Online revenue represented 92%, 90% and 88% of total revenues for
the years ended December 31, 2014, 2013 and 2012, respectively.
We use both online and event offerings to provide IT vendors with numerous touch points to reach key IT decision makers and to provide IT
professionals with highly specialized content across multiple forms of media. We are experienced in assisting advertisers to develop custom advertising
programs that maximize branding and ROI. The following is a description of the services we offer:
Online Offerings
Core Online . Our network of websites forms the core of our content platform. Our websites provide IT professionals with comprehensive decision
support information tailored to their specific areas of responsibility and purchasing decisions. Through our websites, we offer a variety of online media
offerings to connect IT vendors to IT professionals.
Lead Generation. Our lead generation offerings allow IT vendors to maximize ROI by capturing qualified sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our lead generation campaigns offer the Activity Intelligence TM Dashboard, a technology
platform that gives our customers’ marketers and sales representatives a real-time view of their prospects, which includes insights on the research activities
of technology buying teams, including at an account level. Lead generation offerings may also include an additional service, TechTarget Re-Engage
(formerly called Nurture & Qualify), 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 lead generation offerings may also include the syndication of the following:
•
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. As part of a lead generation campaign, 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.
•
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.
Branding . Our branding offerings provide IT vendors exposure to targeted audiences of IT professionals actively researching information related to
their products and services and include display advertising (including banners) and custom offerings. Display advertising can be purchased on specific
websites within our network and against specific audience or technology segments. Through an offering called Spoke™, we can also provide our
advertisers with brand exposure to our audience outside of our network of owned and operated websites, with the same types of targeting criteria available
within our network. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.
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Custom Content Creation. In support of our advertisers’ lead generation programs, we will sometimes create white papers, case studies, webcasts,
videos or even entire microsites to our customers’ specifications through our Custom Media team. These customized content assets are then promoted to
our audience in the context of the advertisers’ lead generation programs. Our custom offerings allow customers to have content or entire microsites created
that focus on topics related to their marketing objectives and include promotion of these vehicles to our users, which includes IT professionals and buyers of
IT products.
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, advertisers get the
benefit of association with independently created content as well as access to qualified sales leads that are researching the topic.
List Rentals. We also offer IT vendors the ability to message registered members on topics related to their interests by renting our e-mail and postal
lists of registered members, which is organized using specific criteria such as company size, geography or job title.
Third Party Revenue Sharing Arrangements. We have revenue sharing arrangements with certain third parties to allow for the licensing of our online
content, for the renting of our database of opted-in e-mail subscribers and to allow advertising from customers of certain third parties to be made available
to our website visitors. In each of these arrangements we are paid a share of the resulting revenue.
IT Deal Alert. IT Deal Alert is a suite of services for advertisers that leverages the detailed purchase intent data that we collect about end-user IT
organizations. Through proprietary scoring methodologies, we use this data to help advertisers 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 is a product that profiles specific in-progress purchase projects, including information on
scope and purchase considerations.
IT Deal Alert: Account Watch™ (rebranded as IT Deal Alert: Priority Engine™ in 2015) is a subscription service powered by our
Activity Intelligence platform which integrates with salesforce.com. The service delivers information to allow marketers and sales
personnel to identify accounts actively researching new technology purchases, and to reach active prospects within those organizations
that are relevant to the purchase. We sell this service in approximately 80 technology-specific segments.
•
•
Events
Events revenue represented 8%, 10% and 12% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Most of our
media groups operate revenue-generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are
pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day
conferences, single-day seminars and custom events. Multi-day conferences provide independent content provided by our professionals to our attendees and
allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees. We also hold single-day seminars on
various topics in major cities. These seminars provide independent content provided by our professionals on key sub-topics in the sectors we serve, are free
to qualified attendees, and offer multiple vendors the ability to interact with specific, targeted audiences actively focused on buying decisions. Our custom
events differ from our seminars in that they are exclusively sponsored by a single IT vendor and the content is driven primarily by the sole sponsor.
Our key strategic initiatives include:
Geographic – During 2014 approximately 30% of our total revenues were derived from international geo-targeted campaigns (“international”),
where our target audience is outside North America. International revenue (which also includes international IT Deal Alert revenue of $2.5
million as discussed below) increased by approximately 30% in the year ended December 31, 2014 as compared to the same period a year ago.
We continue to execute very well internationally as we continue to deepen our relatively new relationships with our customers in the United
Kingdom, France, Germany, Australia, Singapore, China and Latin America.
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Product – IT Deal Alert revenues were approximately $16.8 million in the year ended December 31, 2014, up from approximately $3.9 million
in the same period in 2013. This includes international IT Deal Alert revenue of $2.5 million, which is also included in international revenues
discussed above. In the fourth quarter of 2014 we had over 190 active customers utilizing our IT Deal Alert service; this is up from 175
customers in the third quarter of 2014. We expect IT Deal Alert to continue to be a meaningful growth driver into 2015.
Revenue growth for the three and twelve month periods ended December 31, 2014 as compared to the same periods in 2013 was as follows:
Total Online
Total Online by Geographic Area:
North America:
North America Core Online
North America IT Deal Alert
Total North America Online
International:
International Core Online
International IT Deal Alert
Total International Online
Total Online by Product:
Core Online:
North America Core Online
International Core Online
Total Core Online
IT Deal Alert:
North America IT Deal Alert
International IT Deal Alert
Total IT Deal Alert
Total Events
Total Revenues
Three months ended
December 31,
Growth
Twelve months ended
December 31,
Growth
2014
2013
rate
2014
2013
rate
(unaudited)
($’s in thousands)
$ 27,657 $ 22,033
(unaudited)
($’s in thousands)
26 % $ 97,607 $ 79,709
22 %
14,968 12,581
3,690 2,578
18,658
15,159
19 %
43 %
23 %
52,734 52,737
0 %
14,257 3,537 303 %
19 %
56,274
66,991
8,154
845
8,999
6,655
219
6,874
23 %
286 %
31 %
28,090
2,526
30,616
23,086
349
23,435
22 %
624 %
31 %
14,968
8,154
23,122
12,581
6,655
19,236
19 %
23 %
20 %
52,734
28,090
80,824
52,737
23,086
75,823
0 %
22 %
7 %
3,690
845
4,535
2,578
219
2,797
43 %
286 %
62 %
14,257
2,526
16,783
3,537
349
3,886
303 %
624 %
332 %
2,989
1,706
$ 30,646 $ 23,739
8,596
75 %
8,787
29 % $ 106,203 $ 88,496
-2 %
20 %
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 and net interest and other expenses. Personnel-related costs are a significant component of each of these expense categories except for
depreciation, amortization, and net interest and other related expenses.
Cost of Online Revenue. 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 list rental offerings; stock-based compensation expenses; facility expenses and other related overhead.
Cost of Events Revenue. 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; stock-based compensation expenses; facilities expenses and other
related overhead.
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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 revenue.
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. Depreciation of property and equipment 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 three to ten years, using methods that are expected to reflect the estimated pattern of economic use.
Interest and Other Income (Expense), Net. Interest income (expense), net consists primarily of interest income earned on cash, cash equivalents and
short and long-term investments less any interest expense incurred. We historically have invested our cash in money market accounts, municipal bonds and
government agency bonds. Other income (expense), net consists of non-operating gains or losses, primarily related to foreign currency exchange.
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 United States. 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 revenue, 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.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial
statements. See the notes to our consolidated financial statements for information about these critical accounting policies as well as a description of our
other accounting policies.
Revenue Recognition
We generate substantially all of our revenue from the sale of targeted advertising campaigns which we deliver via our network of websites and
events. In all cases, we recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is
performed and collectability of the resulting receivable is reasonably assured.
The majority of our online media sales involve multiple product offerings. Although each of our online media offerings can be sold separately, most
of our online media sales involve multiple online offerings. Because objective evidence of fair value does not exist for all elements in our bundled product
offerings, we use a best estimate of selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other
third-party evidence of fair value. We establish best estimates considering multiple factors including, but not limited to, class of client, size of transaction,
available media inventory, pricing strategies and market conditions. We believe the use of the best estimate of selling price allows revenue recognition in a
manner consistent with the underlying economics of the transaction. We apply a relative selling price method to allocate arrangement consideration at the
inception of the arrangement to each deliverable in a multiple element arrangement. Revenue is then recognized as delivery occurs.
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We evaluate all deliverables of an arrangement at inception and each time an item is delivered, to determine whether they represent separate units of
accounting. Based on this evaluation, the arrangement consideration is measured and allocated to each of these elements.
Online Offerings
Core Online.
Lead Generation. As part of these offerings, we guarantee a minimum number of qualified leads to be delivered over the course of the advertising
campaign. We determine the content necessary to achieve performance guarantees. Scheduled end dates of advertising campaigns sometimes need to be
extended, pursuant to the terms of the arrangement, to satisfy lead guarantee obligations. We estimate a revenue reserve necessary to adjust revenue
recognition for extended advertising campaigns. These estimates are based on our experience in managing and fulfilling these offerings. The customer has
cancellation privileges which generally require advance notice by the customer and require proportional payment by the customer for the portion of the
campaign period that has been provided. Additionally, we offer sales incentives to certain customers, primarily in the form of volume rebates, which are
classified as a reduction of revenues and are calculated based on the terms of the specific customer’s contract. We accrue for these sales incentives based on
contractual terms and historical experience. We recognize revenue from cost per lead advertising and duration-based campaigns in the period during which
the leads are delivered, which is typically less than six months.
Branding. Branding consists mostly of banner revenue, which is recognized in the period in which the banner impressions, engagements or clicks
occur.
Custom Content Creation . Custom content revenue is recognized when the creation is completed and delivered to the customer, with the exception of
microsites which are recognized over the period during which they are live.
Content Sponsorships. Content sponsorship revenue is recognized ratably over the period in which the related content vehicle is available on our
websites.
List Rentals. List rental revenue is recognized in the period in which delivery of the list is made to our customers.
Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in
which the services are performed. For certain third party agreements where we are the primary obligor, revenue is recognized on a gross basis in the period
in which the services are performed.
IT Deal Alert . IT Deal Alert is a suite of products which includes Qualified Sales Opportunities and Account Watch (which was introduced in 2014
and rebranded in 2015 as Priority Engine). Qualified Sales Opportunities revenue is recognized when the opportunity is delivered to the customer; Account
Watch revenue is recognized ratably over the duration of the service.
Events
We recognize revenue from events in the period in which the event occurs. The majority of our events are free to qualified attendees; however,
certain events are based on a paid attendee model. We recognize revenue for paid attendee events upon completion of the event.
Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
Long-Lived Assets
Our long-lived assets consist primarily of property and equipment, capitalized software, goodwill and other intangible assets. Goodwill and other
intangible assets have arisen principally from our acquisitions. The amount assigned to intangible assets is subjective and based on our estimates of the
future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived
assets, other than goodwill, are amortized over their estimated useful lives, which we determine based on the consideration of several factors including the
period of time the asset is expected to remain in service. Intangible assets are amortized over their estimated useful lives, which range from three to ten
years, using methods of amortization that are expected to reflect the estimated pattern of economic use. Consistent with our determination that we have only
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one reporting segment, we have determined that there is only one reporting unit and test goodwill for impairment at the entity level. We evaluate the
carrying value and remaining useful lives of long-lived assets, other than goodwill, whenever indicators of impairment are present. We evaluate the carrying
value of goodwill annually using the two step process required by Accounting Standards Codification 350, Intangibles – Goodwill and Other (“ASC 350”).
The first step of the impairment test is to identify potential impairment by comparing the reporting unit’s fair value with its net book value (or carrying
amount), including goodwill. The fair value is estimated based on a market value approach. If the fair value of the reporting unit exceeds its carrying
amount, the reporting unit’s goodwill is not considered to be impaired and the second step of the impairment test is not performed. Whenever indicators of
impairment are present, we would perform the second step and compare the implied fair value of the reporting unit’s goodwill, as defined by ASC 350, to
its carrying value to determine the amount of the impairment loss, if any. As of December 31, 2014, there were no indications of impairment based on our
step one analysis, and our estimated fair value exceeded our carrying value by a significant margin.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts receivable, accounts payable and
contingent consideration. Due to their short-term nature and liquidity, the carrying value of these instruments with the exception of contingent consideration
approximates their estimated fair values. The fair value of contingent consideration was estimated using a discounted cash flow method.
Allowance for Doubtful Accounts
We offset gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts on a regular basis, and all past due
balances are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. Provisions for doubtful accounts are recorded in general and administrative expense. If our historical
collection experience does not reflect our future ability to collect outstanding accounts receivable, our future provision for doubtful accounts could be
materially affected. To date, we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved.
The allowance for doubtful accounts was $1.0 and $0.9 million at December 31, 2014 and 2013, respectively.
Stock-Based Compensation
We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in our results
of operations using the straight-line method over the vesting period of the award or using the accelerated method if the award is contingent upon
performance goals. We use the Black-Scholes option pricing model to determine the fair value of stock option awards. We calculated the fair values of the
options granted using the following estimated weighted average assumptions:
Expected volatility
Expected term
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value per share
2014
Years Ended December 31,
2013
78 %
6 years
1.62 %
— %
$ 7.22
67 %
5 years
0.58 %
— %
$ 3.89
2012
88 %
5 years
0.36 %
— %
$ 3.63
The expected volatility of options granted in 2014 and 2013 was determined using a weighted average of the historical volatility of our stock for a
period equal to the expected life of the option. In 2012, as there had been limited historical information on the volatility of our common stock since the date
of our initial public offering in May 2007, we determined the volatility for options granted based on an analysis of the combined historical volatility of our
stock and reported data for a peer group of companies that issued options with substantially similar terms. The risk-free interest rate is based on a zero
coupon United States treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate
paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. We applied an estimated annual
forfeiture rate in determining the expense recorded in each year.
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Internal-Use Software and Website Development Costs
We capitalize costs of materials, consultants and compensation and related expenses of employees who devote time to the development of internal-
use software and website applications and infrastructure involving developing software to operate our websites. However, we expense as incurred website
development costs for new features and functionalities since it is not probable that they will result in additional functionality until they are both developed
and tested with confirmation that they are more effective than the current set of features and functionalities on our websites. Our judgment is required in
determining the point at which various projects enter the state at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and
in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in
which we develop and test new features and functionalities related to our websites, assess the ongoing value of capitalized assets or determine the estimated
useful lives over which the costs are amortized, the amount of website development costs we capitalize and amortize in future periods would be impacted.
We review capitalized internal-use software and website development costs for recoverability whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. We would recognize an impairment loss only if the carrying amount of the asset is not recoverable and
exceeds its fair value. We capitalized internal-use software and website development costs of $3.0 million, $3.6 million and $3.0 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
Income Taxes
We are subject to income taxes in both the United States 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, timing of deductions for deferred rent
expense and accrued expenses, and net operating loss (“NOL”) carryforwards. As of December 31, 2014, we had state NOL carryforwards of
approximately $20.5 million, which may be used to offset future taxable income. The NOL carryforwards expire through 2035. We also had foreign NOL
carryforwards of $1.1 million, which may be used to offset future taxable income in foreign jurisdictions until they expire, through 2019.
Net Income (Loss) Per Share
We calculate basic earnings per share (“EPS”) by dividing earnings available to common shareholders for the period by the weighted average number
of common shares and vested, undelivered restricted stock awards. Because the holders of unvested restricted stock awards do not have nonforfeitable
rights to dividends or dividend equivalents, we do not consider these awards to be participating securities that should be included in our computation of
earnings per share under the two-class method. Diluted EPS is computed using the weighted-average number of common shares and vested, undelivered
restricted stock awards during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other
potentially dilutive securities using the treasury stock method. In calculating diluted EPS, the dilutive effect of stock options and restricted stock awards is
computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average
unrecognized compensation expense and assumed tax benefit of stock options and restricted stock awards that are in-the-money. This results in the
“assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options.
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Results of Operations
The following table sets forth our results of operations for the periods indicated:
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Operating income (loss)
Interest and other (expense) income, net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Comparison of Fiscal Years Ended December 31, 2014 and 2013
Revenues
Revenues:
Online
Events
Total revenues
2014
Years Ended December 31,
2013
($ in thousands)
2012
$ 97,607
8,596
106,203
92 % $ 79,709
8,787
8
88,496
100
90 % $ 88,192 88 %
10
100
11,799 12
100
99,991
24,629
3,418
28,047
78,156
23
3
26
74
23,362
3,771
27,133
61,363
27
4
31
69
23,513
4,301
27,814
72,177
24
4
28
72
42,836
7,161
14,878
4,060
1,762
70,697
7,459
(333 )
7,126
3,045
$ 4,081
36,920
40
6,715
7
13,916
14
3,823
4
2,223
2
63,597
67
(2,234 )
7
(260 )
—
(2,494 )
7
3
(657 )
4 % $ (1,837 )
36,718
42
7,521
8
13,112
16
3,279
4
3,351
2
63,981
72
8,196
(3 )
13
—
8,209
(3 )
(1 )
4,185
(2 )% $ 4,024
37
8
13
3
3
64
8
—
8
4
4 %
Years Ended December 31,
2014
2013
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 97,607
8,596
$ 106,203
$ 79,709
8,787
$ 88,496
$ 17,898
(191 )
$ 17,707
22 %
(2 )
20 %
Online. Online revenue for the year ended December 31, 2014 (“fiscal 2014”) represented a $17.9 million increase over the year ended December 31,
2013 (“fiscal 2013”). This increase was primarily attributable to a $12.9 million increase in revenues from new product offerings, primarily IT Deal Alert,
and growth of international core online.
Events. The decrease in events revenue is primarily due to a reduction in the number of conferences and editorial events held during the period,
partially offset by an increase in the number of custom events that we conducted.
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2014
2013
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 24,629
3,418
$ 28,047
$ 78,156
74 %
$ 23,362
3,771
$ 27,133
$ 61,363
69 %
$ 1,267
(353 )
$
914
$ 16,793
5 %
(9 )
3 %
27 %
Cost of Online Revenue. The increase in cost of online revenues was primarily attributable to costs related to new product offerings.
Cost of Events Revenue. The decrease in cost of events revenues was primarily due to decreases in variable direct and employee-related costs as a
result of the decrease in the number of events that we conducted.
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Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for fiscal 2014 was
74% as compared to 69% for fiscal 2013. Online gross profit increased $16.6 million in fiscal 2014 as compared to the same period in 2013, primarily
attributable to the increase in online revenue as compared to the same period a year ago, along with our ability to support this revenue growth with our fixed
cost base. Events gross profit increased by $0.2 million, primarily as a result of variable cost savings on the events we ran in fiscal 2014. Because the
majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period, as well
as the relative contribution of online and events revenues to our total revenues.
Operating Expenses and Other
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Interest and other expense, net
Provision for (benefit from) income taxes
Years Ended December 31,
2014
2013
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 42,836
7,161
14,878
4,060
1,762
$ 70,697
$
(333 )
$ 3,045
$ 36,920
6,715
13,916
3,823
2,223
$ 63,597
(260 )
$
(657 )
$
$ 5,916
446
962
237
(461 )
$ 7,100
$
(73 )
$ 3,702
16 %
7
7
6
(21 )
11 %
(28 )%
(563 )%
Selling and Marketing. Selling and marketing expenses increased year over year, primarily due to increased investment in product innovation as well
as variable compensation-related expenses caused by the increase in revenues and increased costs due to international expansion.
Product Development. The increase in product development expense was primarily caused by a reduction in the amount of these costs that were
capitalized year over year as some resources were allocated to non-capitalized projects due to company priorities.
General and Administrative. The increase in general and administrative expense for the year ended December 31, 2014 compared to the same period
in 2013 was primarily due to a $1.8 million increase in stock-based and other incentive compensation related directly to our financial results and $0.5
million in fees related to a secondary public offering in the second quarter of 2014, offset in part by a decrease in legal fees.
Depreciation and Amortization of Intangible Assets. The increase in depreciation expense is related to an increase in our fixed asset base, primarily as
a result of our continued investment in internal-use software development costs and computer equipment. The decrease in amortization of intangible assets
expense was attributable to certain intangible assets becoming fully amortized during fiscal 2013.
Interest and Other (Expense) Income, Net. The increase in interest and other expense, net, is primarily due to an increase in foreign currency-related
charges due to changes in exchange rates in countries where we record accounts receivable and accounts payable in the normal course of business; other
expense in fiscal 2014 was $0.3 million compared to $0.2 million in fiscal 2013. Interest expense was relatively flat year over year.
Provision for Income Taxes. Our effective tax rate was 43% and 26% for the years ended December 31, 2014 and 2013, respectively. The Company
has permanent differences that increase its tax expense on income or reduce its tax benefit on loss; the lower rate in 2013 as compared to 2014 is primarily
due to our pre-tax loss position in the U.S. for 2013. The effective tax rate differs from the statutory rate primarily due to the permanent difference of
nondeductible expenses and state income taxes.
Reclassifications. Beginning in the third quarter of 2014, we changed the presentation of transactional gains and losses arising from the impact of
currency exchange rate fluctuations on transactions in foreign currency that is different from the local functional currency in order to better reflect the non-
operating nature of these gains and losses, and are now including them in Other Income (Expense) on the Consolidated Statements of Comprehensive
Income (Loss). Previously, these gains and losses were included in our operating expenses as General and Administrative expense. Amounts in the prior
periods’ consolidated financial statements have been reclassified to conform to the current presentation. In 2013, this resulted in an increase to Other
Expense and a decrease in General and Administrative expense equal to $0.2 million.
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Comparison of Fiscal Years Ended December 31, 2013 and 2012
Revenues
Revenues:
Online
Events
Total revenues
Years Ended December 31,
2013
2012
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 79,709
8,787
$ 88,496
$ 88,192
11,799
$ 99,991
$ (8,483 )
(3,012 )
$ (11,495 )
(10 )%
(26 )
(11 )%
Online. The decrease in online revenue was primarily attributable to an $11.6 million decrease in lead generation offerings as well as a $1.4 million
decrease in branding revenues, primarily due to lower banner sales volume. The decrease in lead generation and branding revenues is primarily in North
American sales, caused by continued delays in IT purchases due to uncertainty in the macro environment. This decrease is offset in part by an increase in
international revenues as we continue to migrate from a partnership model to international direct operations. Additionally, there was a $4.1 million increase
in revenues from new product offerings, primarily IT Deal Alert, and a $0.5 million increase in third party revenues.
Events. The decrease in events revenue is primarily due to a reduction in the number of seminars and custom events that we conducted.
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2013
2012
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 23,362
3,771
$ 27,133
$ 61,363
69 %
$ 23,513
4,301
$ 27,814
$ 72,177
72 %
$
(151 )
(530 )
$
(681 )
$ (10,814 )
(1 )%
(12 )
(2 )%
(15 )%
Cost of Online Revenue. The decrease in cost of online revenues was primarily attributable to a reduction in variable direct, third party and employee-
related costs due to the decrease in online revenues year over year, offset in part by costs related to new product offerings.
Cost of Events Revenue. Cost of events revenues decreased in the year ended December 31, 2013 (“fiscal 2013”) as compared to the same period in
the prior year, primarily due to decreases in variable direct costs as a result of the decrease in the number of events that we conducted.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for fiscal 2013 was
69% and for the year ended December 31, 2012 (“fiscal 2012”) was 72%. Online gross profit decreased $8.3 million in fiscal 2013 as compared to the same
period in 2012, primarily attributable to the decrease in online revenue as compared to the same period a year ago. Events gross profit decreased by $2.5
million, primarily as a result of the lower events revenues, which were offset in part by a reduction in related variable direct costs. Because the majority of
our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period, as well as the
relative contribution of online and events revenues to our total revenues.
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Operating Expenses and Other
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Interest and other (expense) income, net
(Benefit from) provision for income taxes
Years Ended December 31,
2013
2012
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 36,920
6,715
13,916
3,823
2,223
$ 63,597
$ (260 )
$ (657 )
$ 36,718
7,521
13,112
3,279
3,351
$ 63,981
$
13
$ 4,185
$
202
(806 )
804
544
(1,128 )
(384 )
$
$
(273 )
$ (4,842 )
1 %
(11 )
6
17
(34 )
(1 )%
(2100 )%
(116 )%
Selling and Marketing. Selling and marketing expenses increased $0.2 million in fiscal 2013 over 2012, primarily related to a $0.3 million increase in
international employee-related expenses, including tax equalization, due to international expansion. This increase was offset in part by a $0.1 million
decrease in stock-based compensation due to the completion of vesting of certain equity awards.
Product Development. The decrease in product development expense in fiscal 2013 was primarily caused by a $0.7 million reduction in payroll and
allocated costs, most of which is due to these costs being capitalized at higher levels resulting from our ongoing internal development projects.
General and Administrative. The increase in general and administrative expense was primarily attributable to a $0.6 million increase in legal fees, a
$0.5 million increase in stock-based compensation, primarily due to grants made late in 2012 and a $0.2 million charge related to contingent consideration.
These increases were offset in part by a $0.3 million decrease in bad debt expense and a $0.2 million reduction in employee-related and corporate expenses.
Depreciation and Amortization of Intangible Assets. The increase in depreciation expense is related to our increased fixed asset base, primarily as a
result of our continued investment in internal-use software development costs and computer equipment. The decrease in amortization of intangible assets
expense was primarily attributable to certain intangible assets becoming fully amortized during late 2012 or early 2013, partially offset by amortization of
intangible assets related to the LeMag acquisition that took place in the fourth quarter of 2012.
Interest and Other (Expense) Income, Net. Interest expense was $20,000 in fiscal 2013 compared to interest income of $0.1 million in fiscal 2012.
The decrease in interest income, net, is due to present value discounts on installment payments related to the purchase of LeMagIT in the fourth quarter of
2012, which are partially offsetting our 2013 interest income. Other expense in fiscal 2013 was $0.2 million compared to $0.1 million in fiscal 2012. This
increase in other expense was related to foreign currency-related charges due to changes in exchange rates in countries where we record accounts receivable
and accounts payable in the normal course of business.
Provision for Income Taxes. Our effective tax rate was 26% and 51% for the years ended December 31, 2013 and 2012, respectively. The lower rate
in 2013 as compared to 2012 is primarily due to our pre-tax loss position in the U.S. for 2013. The effective tax rate differs from the statutory rate primarily
due to the permanent difference of nondeductible stock-based compensation expense of $0.3 million and $1.2 million for the years ended December 31,
2013 and 2012, respectively.
Reclassifications. Beginning in the third quarter of 2014, we changed the presentation of transactional gains and losses arising from the impact of
currency exchange rate fluctuations on transactions in foreign currency that is different from the local functional currency in order to better reflect the non-
operating nature of these gains and losses, and are now including them in Other Income (Expense) on the Consolidated Statements of Comprehensive
Income (Loss). Previously, these gains and losses were included in our operating expenses as General and Administrative expense. Amounts in the prior
periods’ consolidated financial statements have been reclassified to conform to the current presentation. In the twelve months ended December 31, 2013,
this resulted in an increase to Other Expense and a decrease in General and Administrative expense equal to $0.2 million and for the twelve months ended
December 31, 2012, this resulted in a decrease to Other Income and a decrease in General and Administrative expense amounting to $0.1 million.
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Selected Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2014. The
unaudited quarterly consolidated information has been prepared on the same basis as our audited consolidated financial statements. You should read the
following table presenting our quarterly consolidated results of operations in conjunction with our audited consolidated financial statements and the related
notes included elsewhere in this Annual Report. The operating results for any quarter are not necessarily indicative of the operating results for any future
period.
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Operating income (loss)
Interest and other income (expense), net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Seasonality
For the Three Months Ended
2014
2013
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
(in thousands, except per share data)
$ 22,080 $ 23,652 $ 24,218 $ 27,657 $ 18,475 $ 20,371 $ 18,830 $ 22,033
897 2,496 2,214 2,989 1,073 2,727 3,281 1,706
22,977 26,148 26,432 30,646 19,548 23,098 22,111 23,739
547
6,090 6,149 5,949 6,441 5,928 6,138 5,514 5,782
787
6,637 7,128 6,754 7,528 6,604 7,225 6,735 6,569
16,340 19,020 19,678 23,118 12,944 15,873 15,376 17,170
676 1,087 1,221
805 1,087
979
454
451
872
734
989 1,012 1,024 1,035
406
451
9,746 10,007 10,964 12,119 9,120 9,093 8,773 9,934
1,605 1,742 1,854 1,960 1,741 1,676 1,680 1,618
3,352 3,884 3,628 4,014 3,167 3,418 3,722 3,609
961 1,005
467
474
16,143 17,099 17,921 19,534 15,634 15,720 15,610 16,633
537
(35 )
502
503
717
$ 135 $ 1,303 $
(1 )
$ 0.00 $ 0.04 $ 0.03 $ 0.05 $ (0.04 ) $ (0.02 ) $ 0.01 $ (0.00 )
$ 0.00 $ 0.04 $ 0.03 $ 0.05 $ (0.04 ) $ (0.02 ) $ 0.01 $ (0.00 )
(234 )
197 1,921 1,757 3,584 (2,690 )
148
(137 )
(230 )
(86 )
207 2,020 1,527 3,372 (2,827 )
589 1,667 (1,285 )
(663 )
938 $ 1,705 $ (1,542 ) $ (871 ) $ 577 $
153
(236 )
(83 )
788
985
548
(212 )
10
99
72
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 have their new product introductions, and the historical decrease in advertising and
events activity in summer months. Events revenue may vary depending on which quarters we produce the event, which may vary when compared to
previous periods. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of online
revenues, selling and marketing, product development, and general and administrative expenses as a percentage of revenue 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.
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Liquidity and Capital Resources
Resources
At December 31, 2014, we had $36.9 million of working capital, and our cash and cash equivalents totaled $19.3 million. Our cash, cash equivalents
and investments increased $4.4 million during fiscal 2014, primarily from cash generated by our operations, as well as cash received from employee stock
option exercises, offset by the repurchase of shares under our stock repurchase plan and purchases of property and equipment. We believe that our existing
cash, cash equivalents, and investments, our cash flow from operating activities and available bank borrowings 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.
Cash, cash equivalents and investments
Accounts receivable, net
Cash, Cash Equivalents and Investments
2014
$ 38,183
$ 23,200
As of December 31,
2013
(in thousands)
$ 33,772
$ 22,116
2012
$ 76,340
$ 24,185
Our cash, cash equivalents and investments at December 31, 2014 were held for working capital purposes and were invested primarily in money
market accounts, municipal bonds and government agency 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 revenue for the applicable period, multiplied by the number of days in the applicable period. DSO was 70 days at December 31, 2014, 86 days at
December 31, 2013 and 88 days at December 31, 2012. The decrease in DSO year over year is primarily due to more timely payments from all classes of
customers.
Operating Activities
Cash provided by operating activities
Cash used in investing activities(1)
Cash (used in) provided by financing activities
2014
Years Ended December 31,
2013
(in thousands)
$ 18,217 $ 8,275 $ 18,636
$ (3,847 ) $ (4,477 ) $ (5,267 )
$ (9,535 ) $ (45,986 ) $ 652
2012
(1) Cash used in investing activities is shown net of purchases and sales/maturities of investments of $(0.9) million, $9.1 million and $8.6 million for the
years ended December 31, 2014, 2013 and 2012, respectively.
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 year ended December 31, 2014 was $18.2 million compared to $8.3 million and $18.6 million in the years ended
December 31, 2013 and 2012, respectively.
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The increase in cash provided by operations in fiscal 2014 compared to fiscal 2013 was primarily caused by a $5.5 million increase in net income
adjusted for non-cash related items, which was primarily related to net income of $4.1 million in 2014 compared to a net loss of $1.8 million in 2013 and
stock-based compensation of $7.3 million in 2014 compared with $5.6 million in 2013. Also contributing to this increase in cash from operations was
positive adjustments in operating assets and liabilities of $0.8 million in 2014 as compared to net cash used by changes in operating assets and liabilities of
$3.6 million in 2013. Significant components of the changes in assets and liabilities included an increase in income taxes payable of $4.7 million in 2014
compared to a decrease of $5.0 million in 2013 and an increase in accrued compensation of $0.5 million in 2014 compared to a de minimis decrease in
2013, offset in part by an increase of $1.8 million in accounts receivable in 2014 compared with a decrease of $1.5 million in 2013, a decrease in deferred
revenue of $0.2 million in 2014 compared to an increase of $1.1 million in 2013 and a decrease in accrued expenses of $0.6 million in 2014 compared to an
increase of $0.4 million in 2013.
The decrease in cash provided by operations in fiscal 2013 compared to fiscal 2012 was primarily caused by a $5.6 million decrease in net income
adjusted for non-cash related items, which was primarily related to a net loss of $1.8 million in 2013 compared to net income of $4.0 million in 2012. Also
contributing was net cash used by changes in operating assets and liabilities of $3.6 million in 2013 as compared to net cash provided by changes in
operating assets and liabilities of $1.2 million in 2012. Significant components of the changes in assets and liabilities included a reduction in income taxes
payable of $5.0 million in 2013 as compared with an increase of $0.3 million in 2013, offset by an increase in accrued expenses of $0.5 million in 2013 as
compared with a decrease of $1.4 million in 2012, caused primarily by a $1.4 million payment of contingent compensation in 2012 that had been accrued in
2011.
Investing Activities
Cash used in investing activities in the year ended December 31, 2014, excluding purchases and sales/maturities of investments, was $3.8 million for
the purchase of property and equipment, primarily website development costs, computer equipment and related software and internal-use development
costs.
Cash used in investing activities in the year ended December 31, 2013, excluding purchases and sales/maturities of investments, was $4.5 million for
the purchase of property and equipment, primarily website development costs, computer equipment and related software and internal-use development
costs.
Cash used in investing activities in the year ended December 31, 2012, excluding purchases and sales/maturities of investments, was $4.2 million for
the purchase of property and equipment, primarily website development costs, computer equipment and related software and internal-use development
costs. Additionally, cash investment of $1.1 million was made for the purchase of LeMagIT in December 2012.
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 $3.8 million,
$4.5 million and $4.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. A majority of our capital expenditures in 2014 were
internal-use development costs and, to a lesser extent, computer equipment and related software. We are not currently party to any purchase contracts
related to future capital expenditures.
We expect to spend approximately $3.8 million in capital expenditures in 2015, primarily for internal-use software development costs, computer
equipment and related software. We are not currently party to any purchase contracts related to future capital expenditures.
Financing Activities
We received proceeds from the exercise of common stock options totaling $4.8 million, $1.6 million and $0.8 million for the years ended December
31, 2014, 2013 and 2012, respectively.
On August 4, 2014, our Board of Directors authorized a $20 million stock repurchase program (the “2014 Program”). Under the 2014 Program, we
are authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any
shares repurchased will be determined based on an evaluation of market conditions and other factors. We may elect to implement a Rule 10b5-1 trading
plan to make such purchases, which would permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading
laws. The 2014 Program may be suspended or discontinued at any time. During the year ended December 31, 2014 we repurchased 1,551,224 shares of
common stock for approximately $15.0 million pursuant to the 2014 Program.
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On August 3, 2012, our Board of Directors authorized a $20 million stock repurchase program (the “2012 Program”). Under the 2012 Program, we
were authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of
any shares of common stock repurchased was determined based on an evaluation of market conditions and other factors. We elected to implement a Rule
10b5-1 trading plan to make such purchases, which permits shares of common stock to be repurchased when we might otherwise be precluded from doing
so under insider trading laws. During the year ended December 31, 2013 we repurchased 2,610,279 shares of common stock for approximately $12.4
million pursuant to the 2012 Program. The 2012 Program was terminated immediately prior to the commencement of a tender offer on September 25, 2013,
through which we accepted for purchase 7,100,565 shares of our common stock for a total cost of $35.6 million, which includes approximately $0.1 million
in fees and expenses.
Share Repurchase
On December 9, 2014, we entered into a Purchase Agreement with TCV V, L.P. (“TCV V”) and TCV Member Fund, L.P. (“TCV Member Fund” and
collectively with TCV V, “TCV”) pursuant to which we agreed to repurchase from TCV 1,000,000 shares of the Company’s common stock, $0.001 par
value per share (the “Common Stock”) for an aggregate price of $9,797,000. The purchase price per share of Common Stock was equal to 97% of the
closing price of the Common Stock on the Nasdaq Global Market on December 8, 2014. The repurchase closed on December 10, 2014, and these shares are
included in the 1,551,224 shares of common stock purchased under the 2014 plan noted above. Jay Hoag, a member of our board of directors, is a member
of the general partner of TCV, which holds more than 5% of our voting securities.
Secondary Offering
In May 2014, we completed a secondary public offering of 5,750,000 shares of common stock at a price of $6.25 per share. All of the shares sold in
the secondary public offering were sold by selling stockholders and we did not receive any proceeds from the offering. We incurred fees of approximately
$0.5 million related to legal, accounting, and other fees in connection with the secondary public offering, which is included in general and administrative
expenses in the Consolidated Statement of Comprehensive Income (Loss).
Tender Offer
On September 25, 2013, we commenced a tender offer to purchase up to 6.5 million shares of our common stock at a price of $5.00 per share.
The tender offer expired on October 24, 2013. In accordance with applicable SEC regulations and the terms of the tender offer, we exercised the right
to purchase additional shares and accepted for purchase 7,100,565 shares of our common stock for a total cost of $35.6 million, which includes
approximately $0.1 million in fees and expenses. Pursuant to the terms of the tender offer, we purchased 2,250,000 shares of common stock from entities
affiliated with Technology Crossover Ventures (“TCV”).
All repurchased shares were funded with cash on hand.
Accrued Stock-Based Compensation
We had approximately $1.4 million included in accrued compensation expenses on our Consolidated Balance Sheet as of December 31, 2014 for
stock-based compensation related to restricted stock awards that had been approved as of that date but had not been delivered. This non-cash compensation
expense is recorded as part of stock compensation expense in our Consolidated Statement of Comprehensive Income (Loss). There were no such accruals as
of December 31, 2013 or 2012.
Term Loan and Credit Facility Borrowings
In August 2006, we entered into a credit agreement (the “Credit Agreement”) with a commercial bank, which included a $10.0 million term loan (the
“Term Loan”) and a $20.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement was amended in August 2007, in
December 2008, in December 2009 and again in August 2011. The amendment in 2009 reduced the Revolving Credit Facility to $5.0 million. We paid off
the remaining balance of the Term Loan in December 2009. The amendment in August 2011 extended the term of the facility and adjusted certain other
financial terms and covenants.
The Revolving Credit Facility has a maturity date of August 31, 2016. Unless earlier payment is required by an event of default, all principal and
unpaid interest will be due and payable on August 31, 2016. At our option, the Revolving Credit Facility bears interest at either the prime rate less 1.00% or
the London Interbank Offered Rate (“LIBOR”) plus the applicable LIBOR margin. The applicable LIBOR margin is based on the ratio of total funded debt
to EBITDA for the preceding four fiscal quarters. As of December 31, 2014, the applicable LIBOR margin was 1.25%.
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We are also required to pay an unused line fee on the daily unused amount of our Revolving Credit Facility at a per annum rate based on the ratio of
total funded debt to EBITDA for the preceding four fiscal quarters. As of December 31, 2014, unused availability under the Revolving Credit Facility
totaled $5.0 million and the per annum unused line fee rate was 0.20%.
As of December 31, 2014 there were no amounts outstanding under the revolving loan portion of our Revolving Credit Facility. A standby letter of
credit (“Letter of Credit”) related to our corporate headquarters lease that had previously been outstanding against the Revolving Credit Facility was
canceled in October 2014, bringing our available borrowings on the facility to $5.0 million at December 31, 2014.
Borrowings under the Credit Agreement are collateralized by a security interest in substantially all of our assets. Covenants governing the Credit
Agreement include the maintenance of certain financial ratios. As of December 31, 2014, we were in compliance with all covenants under the Credit
Agreement.
Contractual Obligations and Commitments
As of December 31, 2014, our principal commitments consist of obligations under leases for office space. The offices are leased under non-
cancelable operating lease agreements that expire through 2020.
The following table sets forth our commitments to settle contractual obligations in cash as of December 31, 2014:
Payments Due By Period (in thousands)
Less than
More than
Contractual Obligations
Operating leases
Total
1 Year
1–3 Years
3–5 Years
$ 20,119 $ 4,091 $ 7,791 $ 7,665 $
5 Years
572
See Note 9 to the Consolidated Financial Statements for further information with respect to our operating leases.
See Note 4 to the Consolidated Financial Statements for information regarding future payments related to the LeMagIT acquisition.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
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Item 7A.
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, and a VIE in Beijing, PRC. Approximately 22% of our revenues for the
year ended December 31, 2014 were derived from customers with billing addresses outside of North America and our foreign exchange gains/losses were
not significant. We currently believe our exposure to foreign currency exchange rate fluctuations 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.
Interest Rate Risk
At December 31, 2014, we had cash, cash equivalents and investments totaling $38.2 million. These amounts were invested primarily in money
market accounts, municipal bonds and government agency 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 the amount of interest expense we must pay under our revolving credit facility. The advances under this
credit facility bear a variable rate of interest determined as a function of the lender’s prime rate or LIBOR. At December 31, 2014, there were no amounts
outstanding under our revolving credit facility.
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
50
Page
51
52
53
54
55
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TechTarget, Inc.
Newton, Massachusetts
We have audited the accompanying consolidated balance sheets of TechTarget, Inc. as of December 31, 2014 and 2013 and the related consolidated
statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TechTarget, Inc. at
December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 , in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TechTarget, Inc.’s internal
control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 13, 2015 expressed an unqualified opinion
thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 13, 2015
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Assets
Current assets:
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2014
2013
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,014 and $913 as of December 31, 2014 and 2013,
$ 19,275 $ 15,412
14,401
5,480
respectively
Prepaid expenses and other current assets
Deferred tax assets
Total current assets
Property and equipment, net
Long-term investments
Goodwill
Intangible assets, net of accumulated amortization
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation expenses
Income taxes payable
Deferred revenue
Total current liabilities
Long-term liabilities:
Deferred rent
Deferred tax liabilities
Contingent consideration
Other liabilities
Total liabilities
Commitments and contingencies (Note 9)
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; 49,587,137 shares issued and 32,371,251
shares outstanding at December 31, 2014; 47,648,102 shares issued and 31,983,440 shares outstanding at December 31,
2013
Treasury stock, 17,215,886 and 15,664,662 shares at December 31, 2014 and 2013, respectively, at cost
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements.
52
23,200
2,842
2,674
53,471
9,215
13,428
93,979
2,995
3,230
1,166
$ 177,484
22,116
5,516
555
58,000
9,457
3,959
94,171
4,958
5,873
564
$ 176,982
$ 2,733
2,719
3,043
1,088
6,940
16,523
2,598
473
1,114
930
21,638
$ 2,686
3,300
1,175
—
7,097
14,258
2,980
745
928
1,009
19,920
—
—
50
(98,851 )
280,702
(87 )
(25,968 )
155,846
$ 177,484
48
(83,862 )
270,726
199
(30,049 )
157,062
$ 176,982
Table of Contents
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online(1)
Events(1)
Total cost of revenues
Gross profit
Operating expenses:
TechTarget, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands, except per share data)
For the Years Ended December 31,
2012
2013
2014
Selling and marketing(1)
Product development(1)
General and administrative(1)
Depreciation
Amortization of intangible assets
Total operating expenses
Operating income (loss)
Interest and other (expense) income, net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on investments (net of tax (benefit) provision
of $(17), $(2) and $1, respectively)
Unrealized (loss) gain on foreign currency exchange
Other comprehensive (loss) income
Comprehensive income (loss)
(1) Amounts include stock-based compensation expense as follows:
Cost of online revenue
Cost of events revenue
Selling and marketing
Product development
General and administrative
See accompanying Notes to Consolidated Financial Statements.
53
$ 97,607 $ 79,709 $ 88,192
11,799
99,991
8,596
106,203
8,787
88,496
24,629
3,418
28,047
78,156
23,362
3,771
27,133
61,363
23,513
4,301
27,814
72,177
42,836
7,161
14,878
4,060
1,762
70,697
7,459
(333 )
7,126
3,045
$ 4,081
36,920
6,715
13,916
3,823
2,223
63,597
(2,234 )
(260 )
(2,494 )
(657 )
36,718
7,521
13,112
3,279
3,351
63,981
8,196
13
8,209
4,185
$ (1,837 ) $ 4,024
$
$
0.12
0.12
$ (0.05 ) $ 0.10
$ (0.05 ) $ 0.10
33,010
34,641
37,886
37,886
40,211
40,910
$
(4 ) $
(30 ) $
(256 )
(286 )
$ 3,795
2
112
114
$ (1,502 ) $ 4,138
339
335
$
116
8
3,287
129
3,792
$ 173
18
2,751
212
2,431
$ 202
18
2,888
265
1,894
Table of Contents
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Common Stock
Treasury Stock
Additional
Accumulated
Other
Comprehensive
Accumulated
Total
Stockholders’
Balance, December 31, 2011
44,501,390 $
Issuance of common stock from stock options
Number of
Shares
$0.001
Par Value
Number of
Shares
Paid-In
Capital
Cost
45 5,857,878 $ (35,343 ) $ 257,459 $
(Loss) Income
(250 ) $
2
112
and restricted stock awards
959,867
1
765
Purchase of common stock through stock
repurchase program
Shelf registration fees
Excess tax benefit — stock options
Stock-based compensation expense
Unrealized gain on investments (net of tax
provision of $1)
Unrealized gain on foreign currency
translation
Net income
95,940
(467 )
(69 )
4
5,267
Balance, December 31, 2012
45,461,257 $
46 5,953,818 $ (35,810 ) $ 263,426 $
(136 ) $
Issuance of common stock from stock options
and restricted stock awards
2,186,845
2
1,558
Purchase of common stock through stock
repurchase program
Purchase of common stock through tender
offer (including $140 in related costs)
Excess tax benefit — stock options
Stock-based compensation expense
Unrealized loss on investments (net of tax
benefit of $2)
Unrealized gain on foreign currency
translation
Net loss
2,610,279 (12,409 )
7,100,565 (35,643 )
157
5,585
(4 )
339
Balance, December 31, 2013
47,648,102 $
48 15,664,662 $ (83,862 ) $ 270,726 $
199 $
Issuance of common stock from stock options
and restricted stock awards
1,939,035
2
4,802
Purchase of common stock through stock
repurchase program
Shelf registration fees
Excess tax benefit — stock options
Stock-based compensation expense
Unrealized loss on investments (net of tax
benefit of $17)
Unrealized loss on foreign currency
translation
Net income
1,551,224 (14,989 )
(62 )
(712 )
5,948
(30 )
(256 )
Balance, December 31, 2014
49,587,137 $
50 17,215,886 $ (98,851 ) $ 280,702 $
(87 ) $
See accompanying Notes to Consolidated Financial Statements.
54
Deficit
(32,236 ) $ 189,675
Equity
766
(467 )
(69 )
4
5,267
2
112
4,024
(28,212 ) $ 199,314
4,024
1,560
(12,409 )
(35,643 )
157
5,585
(4 )
339
(1,837 )
(30,049 ) $ 157,062
(1,837 )
4,804
(14,989 )
(62 )
(712 )
5,948
(30 )
(256 )
4,081
(25,968 ) $ 155,846
4,081
Table of Contents
TechTarget, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Provision for bad debt
Amortization of investment premiums
Stock-based compensation
Deferred tax (benefit) provision
Excess tax benefit—stock options
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Income taxes payable
Accrued expenses and other current liabilities
Accrued compensation expenses
Deferred revenue
Other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment, and other capitalized assets
Purchases of investments
Proceeds from sales and maturities of investments
Acquisition of businesses, net of cash acquired
Net cash (used in) provided by investing activities
Financing activities:
Purchase of treasury shares and related costs
Excess tax benefit—stock options
Tender offer fees
Shelf registration fees
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes, net
Supplemental disclosure of non-cash investing activities:
Accrual for contingent consideration and cash to be paid in connection with an acquisition
See accompanying Notes to Consolidated Financial Statements.
55
For the Years Ended December 31,
2012
2013
2014
$ 4,081 $ (1,837 ) $ 4,024
5,822
708
291
7,332
(104 )
(712 )
6,046
564
466
5,585
1,554
(506 )
6,630
827
927
5,267
231
(422 )
(1,845 )
(912 )
(594 )
56
4,689
(576 )
479
(157 )
(341 )
18,217
1,496
(524 )
(314 )
(239 )
(5,004 )
412
(17 )
1,112
(519 )
8,275
1,860
384
(54 )
(144 )
321
(1,421 )
57
374
(225 )
18,636
(3,847 )
(15,101 )
14,215
—
(4,733 )
(4,477 )
(16,433 )
25,555
—
4,645
(4,150 )
(21,373 )
29,954
(1,117 )
3,314
(14,989 )
712
—
(62 )
4,804
(9,535 )
(86 )
3,863
15,412
$ 19,275
(47,912 )
506
(140 )
—
1,560
(45,986 )
69
(32,997 )
48,409
$ 15,412
(467 )
422
—
(69 )
766
652
21
22,623
25,786
$ 48,409
$ —
118
$
$ —
$ 2,834
$ —
$ 3,662
$ —
$ —
$ 1,715
Table of Contents
TechTarget, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2014, 2013 and 2012
(In thousands, except share and per share data, where otherwise noted or instances where expressed in millions)
1. Organization and Operations
TechTarget, Inc. (the “Company”) is a leading provider of specialized online content and brand advertising that brings together buyers and sellers of
corporate information technology (“IT”) products. The Company sells customized marketing programs that enable IT vendors to reach corporate IT
decision makers who are actively researching specific IT purchases. The Company operates a network of over 150 websites, each of which focuses on a
specific IT sector, such as storage, security or networking. During the critical stages of the purchase decision process, these content offerings 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, high return on investment (“ROI”). As IT professionals have become increasingly specialized, they have come to rely on the
Company’s sector-specific websites for purchasing decision support. The Company’s content enables IT professionals to navigate the complex and rapidly
changing IT landscape where purchasing decisions can have significant financial and operational consequences. Based upon the logical clustering of users’
respective job responsibilities and the marketing focus of the products that the Company’s customers are advertising, the Company’s key marketing
opportunities and audience extensions are currently addressed using nine distinct media groups: Application Architecture and Development; Channel;
CIO/IT Strategy; Data Center and Virtualization Technologies; Business Applications and Analytics; Networking; Security; Storage; and
TechnologyGuide.
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.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, which are comprised
of KnowledgeStorm, Inc., Bitpipe, Inc., TechTarget Securities Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited, TechTarget (Beijing)
Information Technology Consulting Co., Ltd., TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS and TechTarget
Germany GmbH. KnowledgeStorm, Inc. and Bitpipe, Inc. feature websites that provide in-depth vendor generated content targeted to corporate IT
professionals. TechTarget Securities Corporation is a Massachusetts security corporation incorporated in 2004. TechTarget Limited is a subsidiary doing
business principally in the United Kingdom. TechTarget (HK) Limited (“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 TechTarget (Beijing) Information
Technology Consulting Co., Ltd. (“TTGT Consulting”, incorporated on December 16, 2011), 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”)
on November 27, 2007. TechTarget (Australia) Pty Ltd. (incorporated on December 15, 2011) and TechTarget (Singapore) Pte Ltd. (incorporated on
February 12, 2012) are the entities through which the Company does business in Australia and Singapore, respectively; E-Magine Médias SAS
(“LeMagIT”) and TechTarget Germany GmbH (incorporated on June 6, 2014), both wholly-owned subsidiaries of TechTarget Limited, are entities through
which the Company does business in France and Germany, respectively.
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 their 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. On December 31, 2011, TTGT
HK assigned all of its rights and obligations to the newly formed wholly foreign-owned enterprise (“WFOE”), TTGT Consulting. The WFOE 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”) subtopic 810-10, Consolidation: Overall , because the Company holds all the variable interests of KWIT through the WFOE, which is the primary
beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a
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Table of Contents
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 the WFOE. 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.
Reclassifications
Beginning in the third quarter of 2014, the Company changed its presentation of transactional gains and losses arising from the impact of currency
exchange rate fluctuations on transactions in foreign currency that is different from the local functional currency in order to better reflect the non-operating
nature of these gains and losses, and is now including them in Other Income (Expense) on the Consolidated Statements of Comprehensive Income (Loss).
Previously, these gains and losses were included in the Company’s operating expenses as General and Administrative expense. Amounts in the prior
periods’ financial statements have been reclassified to conform to the current presentation. In the year ended December 31, 2013, this resulted in an increase
to Other Expense and a decrease in General and Administrative expense equal to $0.2 million and for the year ended December 31, 2012, this resulted in a
decrease to Other Income and a decrease in General and Administrative expense amounting to $0.1 million.
Use of Estimates
The preparation of 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 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 revenue, long-lived
assets, goodwill, the allowance for doubtful accounts, stock-based compensation, earnouts, self-insurance accruals and income taxes. 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.
Revenue Recognition
The Company generates substantially all of its revenue from the sale of targeted advertising campaigns, which are delivered via its network of
websites, and events. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is
performed and collectability of the resulting receivable is reasonably assured.
The majority of the Company’s online media sales involve multiple product offerings, which are described in more detail below. Because neither
vendor-specific objective evidence of fair value nor third party evidence of fair value exists for all elements in the Company’s bundled product offerings,
the Company uses an estimated selling price which represents management’s best estimate of the stand-alone selling price for each deliverable in an
arrangement. The Company establishes best estimates considering multiple factors including, but not limited to, class of client, size of transaction, available
media inventory, pricing strategies and market conditions. The Company believes the use of the best estimate of selling price allows revenue recognition in
a manner consistent with the underlying economics of the transaction. The Company uses the relative selling price method to allocate consideration at the
inception of the arrangement to each deliverable in a multiple element arrangement. The relative selling price method allocates any discount in the
arrangement proportionately to each deliverable on the basis of the deliverable’s best estimated selling price. Revenue is then recognized as delivery occurs.
The Company evaluates all deliverables of an arrangement at inception and each time an item is delivered, to determine whether they represent
separate units of accounting. Based on this evaluation, the arrangement consideration is measured and allocated to each of these elements.
Online Offerings
Core Online .
Lead Generation. As part of these lead generation campaign offerings, the Company will guarantee a minimum number of qualified leads to be
delivered over the course of the advertising campaign. The Company determines the content necessary to achieve performance guarantees. Scheduled end
dates of advertising campaigns sometimes need to be extended, pursuant to the terms of the arrangement, to satisfy lead guarantees. The Company estimates
a revenue reserve necessary to adjust revenue recognition for
57
Table of Contents
extended advertising campaigns. These estimates are based on the Company’s experience in managing and fulfilling these offerings. The customer has
cancellation privileges which generally require advance notice by the customer and require proportional payment by the customer for the portion of the
campaign period provided by the Company. Additionally, the Company offers sales incentives to certain customers, primarily in the form of volume
rebates, which are classified as a reduction of revenues and are calculated based on the terms of the specific customer’s contract. The Company accrues for
these sales incentives based on contractual terms and historical experience.
The Company recognizes revenue on contracts where pricing is based on cost per lead or duration-based in the period during which the leads are
delivered to its customers.
Branding. Branding consists mostly of banner revenue, which is recognized in the period in which the banner impressions, engagements or clicks
occur.
Custom Content Creation. Custom content revenue is recognized when the creation is completed and delivered to the customer, with the exception of
microsites which are recognized over the period during which they are live.
Content Sponsorships. Content sponsorship revenue is recognized ratably over the period in which the related content asset is available on the
Company’s websites.
List Rentals. List rental revenue is recognized in the period in which the delivery of the list is made to the Company’s customer.
Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in
which the services are performed. For certain third party agreements where the Company is the primary obligor, revenue is recognized on a gross basis in
the period in which the services are performed.
IT Deal Alert . This suite of products includes Qualified Sales Opportunities and Account Watch (rebranded in 2015 as Priority Engine). Qualified
Sales Opportunities revenue is recognized when the opportunity is delivered to the Company’s customer, and Account Watch revenue is recognized ratably
over the duration of the service.
Events
Revenue from vendor-sponsored events, whether sponsored exclusively by a single vendor or in a multi-vendor sponsored event, is recognized upon
completion of the event in the period the event occurs. The majority of the Company’s events are free to qualified attendees; however, certain events are
based on a paid attendee model. The Company recognizes revenue for paid attendee events upon completion of the event.
Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue. The Company excludes from
its deferred revenue and accounts receivable balances amounts for which it has billed in advance prior to the start of a campaign or the delivery of services.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable, accounts payable and contingent
consideration. Due to their short-term nature and liquidity, the carrying value of these instruments, with the exception of contingent consideration,
approximates their estimated fair values. See Note 3 for further information on the fair value of the Company’s investments. The fair value of contingent
consideration was estimated using a discounted cash flow method described in Note 4.
Long-Lived Assets , Goodwill and Indefinite-lived Intangible Assets
Long-lived assets consist primarily of property and equipment, capitalized software, goodwill and other intangible assets. The Company reviews
long-lived assets, including property and equipment and finite intangible assets, for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Conditions that would trigger an impairment assessment include, but are not limited to, a
significant adverse change in legal factors or business climate that could affect the value of an asset or an adverse action or a significant decrease in the
market price. A specifically identified intangible asset must be recorded as a separate asset from goodwill if either of the following two criteria is met:
(1) the intangible asset acquired arises from contractual or other legal rights; or (2) the intangible asset is separable. Accordingly, intangible assets consist
of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair value of net tangible and intangible assets
acquired.
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Table of Contents
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment or more frequently if impairment
indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from
three to ten years, using methods of amortization that are expected to reflect the estimated pattern of economic use, and are reviewed for impairment when
events or changes in circumstances suggest that the assets may not be recoverable. Consistent with the Company’s determination that it has only one
reporting segment, it has been determined that there is only one reporting unit and goodwill is tested for impairment at the entity level. The Company
performs its annual test of impairment of goodwill as of December 31st of each year and whenever events or changes in circumstances suggest that the
carrying amount may not be recoverable using the two step process required by ASC 350, Intangibles – Goodwill and Other (“ASC 350”). The first step of
the impairment test is to identify potential impairment by comparing the reporting unit’s fair value with its net book value (or carrying amount), including
goodwill. The fair value is estimated based on a market value approach. If the fair value of the reporting unit exceeds its carrying amount, the reporting
unit’s goodwill is not considered to be impaired and the second step of the impairment test is not performed. Whenever indicators of impairment become
present, the Company would perform the second step and compare the implied fair value of the reporting unit’s goodwill, as defined by ASC 350, to its
carrying value to determine the amount of the impairment loss, if any. As of December 31, 2014, there were no indications of impairment based on the step
one analysis, and the Company’s estimated fair value exceeded its goodwill carrying value by a significant margin.
Based on the aforementioned evaluation, the Company believes that, as of the balance sheet date presented, none of the Company’s goodwill or other
long-lived assets were impaired. The Company did not have any intangible assets with indefinite lives as of December 31, 2014 or 2013.
Allowance for Doubtful Accounts
The Company offsets gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s
best estimate of the amount of probable credit losses in its existing accounts receivable. The allowance for doubtful accounts is reviewed on a regular basis,
and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. Provisions for doubtful accounts are recorded in general and administrative expense.
Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2014, 2013 and 2012.
Year ended December 31, 2012
Year ended December 31, 2013
Year ended December 31, 2014
Property and Equipment
Balance at
Beginning
of Year
$ 1,062
911
$
913
$
Provision
$ 827
$ 564
$ 708
Acquired in
Business
Combinations
—
—
—
Write-offs,
Balance at
Net of
Recoveries
(978 )
$
(562 )
$
(607 )
$
End of
Year
911
$
$
913
$ 1,014
Property and equipment is stated at cost. Property and equipment acquired through acquisitions of businesses are initially recorded at fair value.
Depreciation is calculated on the straight-line method based on the month the asset is placed in service over the following estimated useful lives:
Furniture and fixtures
Computer equipment and software
Internal-use software and website development costs
Leasehold improvements
Estimated Useful Life
5 years
2–3 years
3–4 years
Shorter of useful life or remaining duration of lease
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Property and equipment consists of the following:
Furniture and fixtures
Computer equipment and software
Leasehold improvements
Internal-use software and website development costs
Less: accumulated depreciation and amortization
As of December 31,
2014
$
831
4,567
1,508
18,034
24,940
(15,725 )
$ 9,215
2013
$
848
4,026
1,294
15,028
21,196
(11,739 )
$ 9,457
Depreciation expense was $4.1 million, $3.8 million and $3.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. Repairs
and maintenance charges that do not increase the useful life of the assets are charged to operations as incurred. The Company wrote off approximately $0.1
million, $2.7 million and $0.8 million of fully depreciated assets that were no longer in service during 2014, 2013 and 2012, respectively.
Depreciation expense is classified as a component of operating expense in the Company’s results of operations.
Internal-Use Software and Website Development Costs
The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to
internal-use software. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized internal-use software and website
development costs are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. An impairment loss would be recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. The Company
capitalized internal-use software and website development costs of $3.0 million, $3.6 million and $3.0 million for the years ended December 31, 2014, 2013
and 2012, respectively.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents, investments
and accounts receivable. The Company maintains its cash and cash equivalents and investments principally in accredited financial institutions of high credit
standing. The Company routinely assesses the credit worthiness of its customers. The Company generally has not experienced any significant losses related
to individual customers or groups of customers in any particular industry or area. The Company does not require collateral. Due to these factors, no
additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.
No single customer represented 10% or more of total accounts receivable at December 31, 2014 or 2013. No single customer accounted for 10% or
more of total revenue in the years ended December 31, 2014 or 2013. One customer accounted for 12% of total revenue for the year ended December 31,
2012.
Income Taxes
The Company’s deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax
bases of assets and liabilities using statutory rates. A valuation allowance is established against net deferred tax assets if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company records a liability for unrecognized tax
benefits resulting from uncertain tax positions taken or expected to be taken in a tax return using a “more likely than not” threshold as required by the
provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes .
The Company recognizes any interest and penalties related to unrecognized tax benefits in income tax expense.
Stock-Based Compensation
The Company has two stock-based employee compensation plans which are more fully described in Note 10. Stock-based compensation cost is
measured at the grant date based on the fair value of the award and is recognized in the Consolidated Statement of Comprehensive Income (Loss) using the
straight-line method over the vesting period of the award or using the accelerated method if the award is contingent upon performance goals. The Company
uses the Black-Scholes option-pricing model to determine the fair value of stock option awards.
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Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity during a period, except those resulting from investments by stockholders and
distributions to stockholders. The Company’s comprehensive income (loss) includes changes in the fair value of the Company’s unrealized gains (losses) on
available for sale securities and foreign currency translation.
There were no material reclassifications out of accumulated other comprehensive income in the periods ended December 31, 2014, 2013 or 2012.
Foreign Currency
The functional currency for each of the Company’s subsidiaries is each country’s local currency. All assets and liabilities are translated into U.S.
dollar equivalents at the exchange rate in effect on the balance sheet date or at a historical rate. Revenues and expenses are translated at average exchange
rates. Translation gains or losses are recorded in stockholders’ equity as an element of accumulated other comprehensive income (loss).
Net Income (Loss) Per Share
Basic earnings per share is computed based on the weighted average number of common shares and vested restricted stock awards outstanding during
the period. Because the holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents, the Company
does not consider these awards to be participating securities that should be included in its computation of earnings per share under the two-class method.
Diluted earnings per share is computed using the weighted average number of common shares and vested restricted stock awards outstanding during the
period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using
the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options and restricted stock awards is computed using the
average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized
compensation expense and assumed tax benefit of stock options and restricted stock awards that are in-the-money. This results in the “assumed” buyback of
additional shares, thereby reducing the dilutive impact of stock options and restricted stock awards.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share is as follows:
For the Years Ended December 31,
2013
2014
2012
Numerator:
Net income (loss)
Denominator:
Basic:
$
4,081 $
(1,837 ) $
4,024
Weighted average shares of common stock and vested restricted stock awards outstanding
33,010,162 37,886,492 40,211,075
Diluted:
Weighted average shares of common stock and vested restricted stock awards outstanding
Effect of potentially dilutive shares
Total weighted average shares of common stock and vested restricted stock awards outstanding
Calculation of Net Income (Loss) Per Common Share:
33,010,162 37,886,492 40,211,075
1,630,349
698,668
34,640,511 37,886,492 40,909,743
—
Basic:
Net income (loss) applicable to common stockholders
Weighted average shares of stock outstanding
Net income (loss) per common share
Diluted:
Net income (loss) applicable to common stockholders
Weighted average shares of stock outstanding
Net income (loss) per common share(1)
4,081 $
$
4,024
33,010,162 37,886,492 40,211,075
0.10
$
(1,837 ) $
(0.05 ) $
0.12 $
4,081 $
$
4,024
34,640,511 37,886,492 40,909,743
0.10
$
(1,837 ) $
(0.05 ) $
0.12 $
(1)
In calculating diluted earnings per share, 1.0 million, 5.3 million and 4.2 million shares related to outstanding stock options and unvested restricted
stock awards were excluded for the years ended December 31, 2014, 2013 and 2012, respectively, because they were anti-dilutive. Additionally,
shares used to calculate diluted earnings per share exclude 0.5 million shares related to outstanding stock options and unvested restricted stock awards
for the year ended December 31, 2013 that would have been dilutive if the Company had net income during that period.
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Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 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. This new guidance is effective for annual reporting periods (including interim reporting
periods within those periods) beginning after December 15, 2016 (January 1, 2017 for the Company); early adoption is not permitted. Entities have the
option of using either a full retrospective or a modified approach to adopt the guidance. The Company is in the process of determining the potential effects
on the consolidated financial statements.
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.
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:
Assets:
Money market funds(1)
Short-term investments(2)
Long-term investments(2)
Total assets
Liabilities:
Contingent consideration – non-current(3)
Total liabilities
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Significant
Unobservable
Quoted Prices
in Active
Markets for
Identical Assets
December 31, 2014
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
1,071
5,480
13,428
19,979
1,114
1,114
$
$
$
1,071
—
—
1,071
$ —
5,480
13,428
$ 18,908
—
—
—
$ —
$
$
$
—
—
—
—
1,114
1,114
$
$
$
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Table of Contents
Assets:
Money market funds(1)
Short-term investments(2)
Long-term investments(2)
Total assets
Liabilities:
Contingent consideration – current(3)
Contingent consideration – non-current(3)
Total liabilities
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Significant
Unobservable
Quoted Prices
in Active
Markets for
Identical Assets
December 31, 2013
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
$
$
$
$
1,607
14,401
3,959
19,967
568
928
1,496
$
$
$
$
1,607
—
—
1,607
$ —
14,401
3,959
$ 18,360
—
—
—
$ —
—
$ —
$
$
$
$
—
—
—
—
568
928
1,496
Included in cash and cash equivalents on the accompanying consolidated balance sheets; valued at quoted market prices in active markets.
(1)
(2) Short and long-term investments consist of municipal bonds and government agency bonds; their fair value is calculated using an interest rate yield
curve for similar instruments.
(3) Our valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with the LeMag
acquisition are described in Note 4. During the years ended December 31, 2014 and 2013 the contingent consideration increased by approximately
$320 and $288, respectively, when it was remeasured to fair value. Payments in the amount of $545 were made in 2014; the remainder of the change
in this balance was caused by amortization of a discount on the installment payments and foreign currency fluctuations. The final payment is
expected to be made after December 31, 2015.
The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the years ended December 31, 2012,
2013 and 2014:
Balance as of December 31, 2011
Payments on contingent liabilities
Contingent liabilities added from LeMag acquisition
Balance as of December 31, 2012
Currency translation impact on contingent liabilities
Remeasurement of contingent liabilities
Balance as of December 31, 2013
Currency translation impact on contingent liabilities
Payments on contingent liabilities
Amortization of discount on contingent liabilities
Remeasurement of contingent liabilities
Balance as of December 31, 2014
Fair Value
$ 1,405
(1,405 )
1,180
$ 1,180
28
288
$ 1,496
(204 )
(545 )
47
320
$ 1,114
4. Acquisitions
LeMagIT
On December 17, 2012 the Company purchased all of the outstanding shares of its French partner, E-Magine Médias SAS, for approximately $2.2
million in cash plus a potential future earnout valued at $0.7 million at the time of the acquisition. Approximately $1.2 million of the cash payment was
made at closing, with the remainder due in two equal installments in fiscal years 2013 and 2014. The third installment was subject to certain revenue growth
targets and the payment was adjusted based on actual results. If all targets are met, the total purchase price, including the earnout, shall not exceed $5.2
million, depending on exchange rates at the time of calculation. The installment payments have been recorded at present value using a discount rate of 10%;
the discount was amortized to interest through the payment dates. The second and third installments were paid in 2013 and 2014, respectively. At
December 31, 2014, the earnout is included in non-current liabilities in the Company’s consolidated balance sheet.
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5. 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:
Cash
Money market funds
Total cash and cash equivalents
As of December 31,
2013
2014
$ 13,805
1,607
$ 15,412
$ 18,204
1,071
$ 19,275
The Company’s short 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 income (loss), a component of stockholders’ equity, net of tax. The
unrealized (loss) gain, net of taxes, was $(20), $10 and $14 as of December 31, 2014, 2013 and 2012, respectively. Realized gains and losses on the sale of
these investments are determined using the specific identification method. There were no material realized gains or losses in 2014, 2013 or 2012.
Short and long-term investments consisted of the following:
Short and long-term investments:
Government agency bonds
Municipal bonds
Total short and long-term investments
Short and long-term investments:
Government agency bonds
Municipal bonds
Total short and long-term investments
December 31, 2014
Gross
Unrealized
Gross
Unrealized
Cost
Gains
Losses
Estimated
Fair
Value
$ 6,632
12,307
$ 18,939
$ —
4
4
$
$
$
(14 )
(21 )
(35 )
$ 6,618
12,290
$ 18,908
December 31, 2013
Gross
Unrealized
Gross
Unrealized
Cost
Gains
Losses
Estimated
Fair
Value
$ 2,511
15,833
$ 18,344
$
$
4
13
17
$ —
(1 )
(1 )
$
$ 2,515
15,845
$ 18,360
The Company had ten debt securities in an unrealized loss position at December 31, 2014. All of these securities have been in such a position for no
more than seven months. The unrealized loss on those securities was approximately $35 and the fair value was $13.4 million. 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 December 31, 2014.
Municipal and government agency bonds have contractual maturity dates that range from February 2015 to February 2018. All income generated
from these investments is recorded as interest income.
6. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows:
Balance as of beginning of year
Goodwill adjustment during the year
Effect of exchange rate changes
Balance as of end of year
64
As of December 31,
2013
2014
$ 93,792
80
299
$ 94,171
$ 94,171
—
(192 )
$ 93,979
Table of Contents
7. Intangible Assets
The following table summarizes the Company’s intangible assets, net:
Customer, affiliate and advertiser relationships
Developed websites, technology and patents
Trademark, trade name and domain name
Proprietary user information database and internet traffic
Non-compete agreements
Total intangible assets
Customer, affiliate and advertiser relationships
Developed websites, technology and patents
Trademark, trade name and domain name
Proprietary user information database and internet traffic
Non-compete agreements
Total intangible assets
As of December 31, 2014
Estimated
Useful Lives
Gross
Carrying
(Years)
5-9
10
5-8
3-5
3
Amount
$ 7,079
1,361
1,859
1,270
85
$ 11,654
Accumulated
Amortization
(5,480 )
$
(499 )
(1,598 )
(1,024 )
(58 )
(8,659 )
$
As of December 31, 2013
Estimated
Useful Lives
Gross
Carrying
(Years)
5-9
6-10
5-8
3-5
2-3
Amount
$ 7,146
6,942
2,044
1,318
450
$ 17,900
Accumulated
Amortization
(4,563 )
$
(5,721 )
(1,482 )
(789 )
(387 )
(12,942 )
$
Net
$ 1,599
862
261
246
27
$ 2,995
Net
$ 2,583
1,221
562
529
63
$ 4,958
Intangible assets are amortized over their estimated useful lives, which range from three 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
2.3 years. Amortization expense was $1.8 million, $2.2 million and $3.4 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets and website traffic that the Company
considers to be in support of selling and marketing activities. The Company wrote off $5.9 million of fully amortized intangible assets in 2014; the
Company did not write off any amortized intangible assets in 2013.
The Company expects amortization expense of intangible assets to be as follows:
Years Ending December 31:
2015
2016
2017
2018
2019
Thereafter
Amortization
Expense
$
$
1,420
880
181
113
95
306
2,995
8. Bank Term Loan Payable
As of December 31, 2014, the Company has a $5.0 million revolving credit facility. Unless earlier payment is required by an event of default, all
principal and unpaid interest will be due and payable on August 31, 2016. At the Company’s option, the Revolving Credit Facility (the “Credit Agreement”)
bears interest at either the prime rate less 1.00% or the London Interbank Offered Rate (“LIBOR”) plus the applicable LIBOR margin. The applicable
LIBOR margin is based on the ratio of total funded debt to earnings before interest, other income and expense, income taxes, depreciation, and amortization
(“EBITDA”) for the preceding four fiscal quarters. As of December 31, 2014, the applicable LIBOR margin was 1.25%.
The Company is also required to pay an unused line fee on the daily unused amount of the Credit Agreement at a per annum rate based on the ratio of
total funded debt to EBITDA for the preceding four fiscal quarters. As of December 31, 2014, the per annum unused line fee rate was 0.20%.
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At December 31, 2014 and December 31, 2013 there were no amounts outstanding under the Credit Agreement. A standby letter of credit related to
the Company’s corporate headquarters lease that had previously been outstanding against the Credit Agreement was canceled in October 2014, bringing the
Company’s available borrowings on the facility to $5.0 million at December 31, 2014.
Borrowings under the Credit Agreement are collateralized by a security interest in substantially all assets of the Company. Covenants governing the
Credit Agreement include the maintenance of certain financial ratios. At December 31, 2014, the Company was in compliance with all covenants under the
Credit Agreement.
9. Commitments and Contingencies
Operating Leases
The Company conducts its operations in leased office facilities under various noncancelable operating lease agreements that expire through March
2020. The Company is receiving certain rent concessions over the life of certain of the leases. In November 2010, the Newton lease was amended to include
an additional 8,400 square feet of office space. The amended lease commenced in March 2011 and runs concurrently with the term of the original lease. The
Company is receiving certain rent concessions over the life of the amended lease.
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 $4.1 million for the year ended December 31, 2014 and $4.0 million for
each of the years ended December 31, 2013 and 2012.
Future minimum lease payments under the Company’s noncancelable operating leases at December 31, 2014 are as follows:
Years Ending December 31:
2015
2016
2017
2018
2019
Thereafter
Minimum
Lease
Payments
$ 4,091
4,079
3,712
3,832
3,833
572
$ 20,119
In the third quarter of 2014, the Company paid $0.7 million in cash as a security deposit on its corporate headquarters lease. An irrevocable standby
letter of credit that had been outstanding in the aggregate amount of $1.0 million supporting the Company’s operating lease was canceled in October 2014.
Net Worth Tax Contingency
In late March 2010, the Company received a letter from the Department of Revenue of the Commonwealth of Massachusetts (the “MA DOR”)
requesting documentation demonstrating that TSC has been classified by the MA DOR as a Massachusetts security corporation. Following subsequent
correspondence with the MA DOR and a settlement conference on March 22, 2011, the Company received a Notice of Assessment from the MA DOR with
respect to additional excise taxes on net worth related to TSC. Based on the Company’s previous assessment that it was probable that the MA DOR would
require an adjustment to correct TSC’s tax filings such that it will be treated as a Massachusetts business corporation for the applicable years, the Company
has recorded a liability representing its best estimate at that time of the potential net worth tax exposure. The tax benefits available to a Massachusetts
security corporation are comprised of (i) a different rate structure (1.32% on gross investment income vs. 9.5% on net income) (See Note 12) and
(ii) exemption from the 0.26% excise tax on net worth. On August 17, 2011, the Company filed Applications for Abatement with the MA DOR. On
January 6, 2012, the Company filed Petitions for Formal Procedure with the Massachusetts Appellate Tax Board. A trial took place on April 29, 2014; as of
the date of this report no decision has been rendered. As of December 31, 2014 the Company has recorded a liability of approximately $672 to account for
the tax differential in all open years, including penalties and interest.
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Table of Contents
Litigation
From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At December 31,
2014 and 2013, 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.
10. Stock-Based Compensation
Stock Option Plans
In September 1999, the Company approved a stock option plan (the “1999 Plan”) that provides for the issuance of up to 12,384,646 shares of
common stock incentives. The 1999 Plan provides for the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock
grants. These incentives may be offered to the Company’s employees, officers, directors, consultants, and advisors. ISOs may not be granted at less than
fair market value on the date of grant, as determined by the Company’s Board of Directors (the “Board”). Each option shall be exercisable at such times and
subject to such terms as determined by 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 allows the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock and other awards.
Under the 2007 Plan, stock options may not be granted at less than fair market value on the date of grant, and grants generally vest over a four year period.
Stock options granted under the 2007 Plan expire no later than ten years after the grant date. The Company has reserved for issuance an aggregate of
2,911,667 shares of common stock under the 2007 Plan plus an additional annual increase to be added automatically 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 of Directors of the
Company. The number of shares available for issuance under the 2007 Plan is subject to adjustment in the event of a stock split, stock dividend or other
change in capitalization. Generally, shares that are forfeited or canceled from awards under the 2007 Plan also will be available for future awards. To date,
approximately 6.7 million shares have been added to the 2007 Plan in accordance with the automatic annual increase. In addition, shares subject to stock
options returned to the 1999 Plan, as a result of their expiration, cancellation or termination, are automatically made available for issuance under the 2007
Plan. As of December 31, 2014, a total of 1,731,936 shares were available for grant under the 2007 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 Company calculated the fair values
of the options granted using the following estimated weighted-average assumptions:
Expected volatility
Expected term
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value per share
2014
Years Ended December 31,
2013
78 %
6 years
1.62 %
— %
$ 7.22
67 %
5 years
0.58 %
— %
$ 3.89
2012
88 %
5 years
0.36 %
— %
$ 3.63
Beginning in 2013, 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; a combined historical volatility of the Company’s stock and the peer group of
companies was used prior to 2013. The risk-free interest rate is based on a zero coupon United States 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 each year.
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Table of Contents
A summary of the stock option activity under the Company’s stock option plans for the year ended December 31, 2014 is presented below:
Weighted-Average
Options outstanding at December 31, 2013
Granted
Exercised
Forfeited
Canceled
Options outstanding at December 31, 2014
Options exercisable at December 31, 2014
Options vested or expected to vest at December 31, 2014(1)
Weighted-Average
Exercise
Options
Outstanding
4,467,248 $
10,000
(970,382 )
(132,609 )
(26,600 )
3,347,657 $
3,343,282 $
3,347,178 $
Price Per Share
7.30
10.53
5.60
6.85
8.23
7.86
7.86
7.86
Remaining
Contractual
Term
in Years
Aggregate
Intrinsic
Value
2.6 $ 12,898
2.6 $ 12,877
2.6 $ 11,742
(1)
In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest
is calculated by applying an estimated forfeiture rate to the unvested options.
During the years ended December 31, 2014, 2013 and 2012, the total intrinsic value of options exercised (i.e. the difference between the market price
of the underlying stock at exercise and the price paid by the employee to exercise the options) was $4.2 million, $1.4 million and $0.2 million, respectively,
and the total amount of cash received by the Company from exercise of these options was $4.8 million, $1.6 million and $0.8 million, respectively.
Restricted Stock Awards
Restricted stock awards 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 award activity under the 2007 Plan for the year ended December 31, 2014 is presented below:
Nonvested outstanding at December 31, 2013
Granted
Vested
Forfeited
Nonvested outstanding at December 31, 2014
Weighted-Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
$
$
5.26
8.05
5.54
6.02
5.83
$ 25,914
Shares
2,777,500
576,570
(1,027,403 )
(47,500 )
2,279,167
The total grant-date fair value of restricted stock awards that vested during the years ended December 31, 2014, 2013 and 2012 was $5.7 million, $5.0
million and $4.2 million, respectively. As of December 31, 2014, there was $11.0 million of total unrecognized compensation expense related to stock
options and restricted stock awards which is expected to be recognized over a weighted average period of 2.1 years.
Accrued Stock-Based Compensation
The Company had approximately $1.4 million included in accrued compensation expenses on its Consolidated Balance Sheet as of December 31,
2014 for stock-based compensation related to restricted stock awards that had been approved as of that date but had not been delivered. This non-cash
compensation expense is recorded as part of stock compensation expense in the Company’s Consolidated Statement of Comprehensive Income (Loss).
There were no such accruals as of December 31, 2013 or 2012.
11. Stockholders’ Equity
Reserved Common Stock
As of December 31, 2014, the Company has reserved 7,832,511 shares of common stock for options outstanding and restricted stock awards that have
not been issued as well as those available for grant under stock option plans.
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Common Stock Repurchase Programs
On August 5, 2014, the Company announced that, on August 4, 2014, its Board of Directors authorized a $20 million stock repurchase program (the
“2014 Program”). The Company is authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated
transactions. The timing and amount of any shares repurchased will be determined based on an evaluation of market conditions and other factors. The
Company may elect to implement a Rule 10b5-1 trading plan to make such purchases, which would permit shares to be repurchased when the Company
might otherwise be precluded from doing so under insider trading laws. The 2014 Program may be suspended or discontinued at any time.
On August 3, 2012, the Company’s Board of Directors authorized a $20 million stock repurchase program (the “2012 Program”) authorizing the
Company to repurchase its common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any
shares repurchased was determined based on an evaluation of market conditions and other factors. The Company elected to implement a Rule 10b5-1
trading plan to make such purchases. The 2012 Program was terminated immediately prior to the commencement of the tender offer on September 25, 2013
(as described below).
During the year ended December 31, 2014 the Company repurchased 1,551,224 shares of common stock for $15.0 million pursuant to the 2014
Program. During the year ended December 31, 2013 the Company repurchased 2,610,279 shares of common stock for $12.4 million pursuant to the 2012
Program. Repurchased shares are recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All
repurchased shares were funded with cash on hand.
Share Repurchase
On December 9, 2014, the Company entered into a Purchase Agreement with TCV V, L.P. (“TCV V”) and TCV Member Fund, L.P. (“TCV Member
Fund” and collectively with TCV V, “TCV”), both related parties, pursuant to which the Company agreed to repurchase from TCV 1,000,000 shares of the
Company’s common stock, $0.001 par value per share (the “Common Stock”) for an aggregate price of $9,797,000. The purchase price per share of
Common Stock was equal to 97% of the closing price of the Common Stock on the Nasdaq Global Market on December 8, 2014. The repurchase closed on
December 10, 2014, and these shares are included in the 1,551,224 shares of common stock purchased under the 2014 plan noted above. A member of the
Company’s board of directors is also a member of the general partner of TCV, which holds more than 5% of the voting securities of the Company.
Secondary Offering
In May 2014, the Company completed a secondary public offering of 5,750,000 shares of common stock at a price of $6.25 per share. All of the
shares sold in the secondary public offering were sold by selling stockholders and the Company did not receive any proceeds from the offering. The
Company incurred fees of approximately $0.5 million related to legal, accounting and other fees in connection with the secondary public offering, which
are included in general and administrative expenses in the Statement of Comprehensive Income (Loss).
Tender Offer
On September 25, 2013, the Company commenced a tender offer to purchase up to 6.5 million shares of its common stock, representing
approximately 16.79% of the shares of TechTarget’s common stock issued and outstanding at that time, at a price of $5.00 per share. On September 23,
2013, the last reported sale price of the Company’s common stock was $4.79 per share.
The tender offer expired on October 24, 2013. In accordance with applicable SEC regulations and the terms of the tender offer, the Company
exercised the right to purchase additional shares and based on the final tabulation by Computershare Trust Company, N.A., the Depositary for the tender
offer, the Company accepted for purchase 7,100,565 shares of its common stock for a total cost of $35.5 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 $35.6 million,
which includes approximately $0.1 million in costs directly attributable to the purchase. Pursuant to the terms of the tender offer, the Company purchased
2,250,000 shares of common stock from entities affiliated with Technology Crossover Ventures (“TCV”).
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12. Income Taxes
Income (loss) before provision for (benefit from) income taxes was as follows:
United States
Foreign
Income (loss) before income taxes
2014
Year Ended December 31,
2013
(in thousands)
$ (3,157 )
663
$ (2,494 )
$ 6,071
1,055
$ 7,126
2012
$ 7,859
350
$ 8,209
The income tax provision (benefit) for the years ended December 31, 2014, 2013 and 2012 consisted of the following:
Years Ended December 31,
2013
2014
2012
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
$ 2,574 $ (2,373 ) $ 3,265
516
171
3,952
34
128
(2,211 )
15
560
3,149
(424 )
593
(273 )
(104 )
$ 3,045
1,700
(157 )
11
1,554
$ (657 )
(172 )
258
147
233
$ 4,185
The income tax provision (benefit) for the years ended December 31, 2014, 2013 and 2012 differs from the amounts computed by applying the
statutory federal income tax rate to the consolidated income (loss) before income taxes as follows:
Years Ended December 31,
Provision (benefit) computed at statutory rate
(Reduction) increase resulting from:
Difference in rates for foreign jurisdictions
Tax exempt interest income
Stock-based compensation
Other non-deductible expenses
Non-deductible officers compensation
State income tax provision
Valuation allowance
Secondary offering
True-up of prior year returns
Penalties and interest
Other
Provision for (benefit from) income taxes
Significant components of the Company’s net deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
Capital losses
Deferred revenue
Accruals and allowances
Intangible asset amortization
Stock-based compensation
Deferred rent expense
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible asset amortization
Deferred revenue
Depreciation
Total deferred tax liabilities
2014
2012
$ 2,477 $ (848 ) $ 2,873
2013
(144 )
—
(479 )
104
492
337
56
188
—
15
(1 )
$ 3,045
(65 )
(6 )
271
116
113
(228 )
100
—
(154 )
15
29
$ (657 )
—
(23 )
526
151
—
391
231
—
—
—
36
$ 4,185
As of December 31,
2014
2013
$ 1,151
46
—
1,681
—
5,718
1,060
9,656
(1,214 )
8,442
(904 )
(44 )
(2,063 )
(3,011 )
$ 1,434
46
917
602
84
5,835
1,202
10,120
(1,158 )
8,962
(734 )
—
(2,545 )
(3,279 )
Net deferred tax assets
As reported:
Current deferred tax assets
Non-current deferred tax assets
Non-current deferred tax liabilities
70
$ 5,431
$ 5,683
$ 2,674
$ 3,230
$ 473
$ 555
$ 5,873
$ 745
Table of Contents
In evaluating the ability to realize the net deferred tax asset, the Company considers all available evidence, both positive and negative, including past
operating results, the existence of cumulative losses in the most recent fiscal years, tax planning strategies that are prudent and feasible, and forecasts of
future taxable income. In considering sources of future taxable income, the Company makes certain assumptions and judgments which are based on the
plans and estimates used to manage the underlying business of the Company. Changes in the Company’s assumptions and estimates may materially impact
income tax expense for the period. The valuation allowance of $1,214 and $1,158 at December 31, 2014 and 2013, respectively, relates to foreign net
operating losses (“NOL’s”) and state NOL’s acquired from KnowledgeStorm that the Company determined were not more likely than not to be realized
based on projections of future taxable income in California, Georgia, China and Hong Kong. The valuation allowance increased by $56, $100 and $231
during the years ended December 31, 2014, 2013 and 2012, respectively. To the extent realization of the deferred tax assets for foreign and the state net
operating losses becomes more likely than not, recognition of these acquired tax benefits would reduce income tax expense. As of December 31, 2014, the
Company has a federal NOL carryforward of approximately $4.3 million, which may be used to offset future taxable income. The federal NOL is
attributable to excess tax deductions from share-based payments, the benefit of which would be credited to additional paid-in capital when the deductions
reduce cash taxes payable. The federal NOL carryforward will expire in 2034.
The Company considers the excess of its financial reporting over its tax basis in its investment in foreign subsidiaries essentially permanent in
duration and as such has not recognized a deferred tax liability related to this difference.
The amount of unrecognized tax benefits at December 31, 2014 was approximately $0.7 million. The amount of unrecognized tax benefits that impact
the effective tax rate, if recognized, is approximately $0.5 million.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2014 and 2013 is as follows:
Balance at beginning of year
Gross increases related to positions taken in prior periods
Balance at end of year
2013
2014
2012
$ 657 $ 642 $ 628
14
$ 642
15
$ 657
15
$ 672
In March 2010, the Company received a letter from the MA DOR requesting documentation demonstrating that TSC, a wholly-owned subsidiary of
the Company, has been classified by the MA DOR as a Massachusetts security corporation. Based on subsequent correspondence with the MA DOR, the
Company determined that it was more likely than not that the MA DOR would require an adjustment to correct TSC’s tax filings such that it will be treated
as a Massachusetts business corporation for the applicable years. The Company recorded a tax reserve for approximately $0.4 million. The tax benefits
available to a Massachusetts security corporation are comprised of (i) a different rate structure (1.32% on gross investment income vs. 9.5% on net income)
and (ii) exemption from the 0.26% excise tax on net worth (see Note 9). On August 17, 2011, the Company filed Applications for Abatement with the MA
DOR. On January 6, 2012, the Company filed Petitions under Formal Procedure with the Massachusetts Appellate Tax Board. A trial took place on
April 29, 2014; no decision has been rendered as of the date of this report. As of December 31, 2014 the Company has recorded a liability of approximately
$672 to account for the tax differential in all open years, which includes penalties and interest for the potential state income tax liability arising from the
difference between the income tax rates applicable to security corporations and business corporations in Massachusetts.
The Company recognized interest and penalties totaling $15 on its uncertain tax positions in income tax expense in 2014. Tax years 2011 through
2014 are subject to examination by the federal and state taxing authorities.
71
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As of December 31, 2014, the Company had state NOL carryforwards of approximately $20.5 million, which may be used to offset future taxable
income. The NOL carryforwards expire at various dates through 2035. The Company has foreign NOL carryforwards of $1.1 million, which may be used to
offset future taxable income in foreign jurisdictions until they expire, through 2019.
13. 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:
2014
North America
International
Total
Long-lived assets** by geographic area were as follows:
$ 83,214
22,989
$ 106,203
$ 65,386
23,110
$ 88,496
Years Ended December 31,
2013
2012
$ 85,406
14,585
$ 99,991
North America
International
Total
Years Ended December 31,
2014
$ 100,042
6,147
$ 106,189
2013
$ 101,241
7,344
$ 108,585
*
**
based on current customer billing address; does not consider the geo-targeted, or target audience, location of the campaign
comprised of property, plant and equipment, net; goodwill; and intangible assets, net
14. 401(k) Plan
The Company maintains a 401(k) retirement savings plan (the “Plan”) whereby employees may elect to defer a portion of their salary and contribute
the deferred portion to the Plan. The Company contributes an amount equal to 50% of the employee’s contribution to the Plan, up to an annual limit of two
thousand dollars. The Company contributed $0.7 million, $0.7 million and $0.8 million to the Plan for the years ended December 31, 2014, 2013 and 2012,
respectively. Employee contributions and the Company’s matching contributions are invested in one or more collective investment funds at the participant’s
direction. The Company’s matching contributions vest 25% annually and are 100% vested after four consecutive years of service.
15. Quarterly Financial Data (unaudited)
Total revenues
Total cost of revenues
Total gross profit
Total operating expenses
Operating income (loss)
Net income (loss)
Net income (loss) per common share:
Basic*
Diluted*
For the Three Months Ended
2014
2013
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
$ 22,977 $ 26,148 $ 26,432 $ 30,646 $ 19,548 $ 23,098 $ 22,111 $ 23,739
6,637 7,128 6,754 7,528 6,604 7,225 6,735 6,569
16,340 19,020 19,678 23,118 12,944 15,873 15,376 17,170
16,143 17,099 17,921 19,534 15,634 15,720 15,610 16,633
537
(1 )
197 1,921 1,757 3,584 (2,690 )
$ 135 $ 1,303 $ 938 $ 1,705 $ (1,542 ) $
153
(234 )
(871 ) $ 577 $
$ 0.00 $ 0.04 $ 0.03 $ 0.05 $ (0.04 ) $ (0.02 ) $ 0.01 $ (0.00 )
$ 0.00 $ 0.04 $ 0.03 $ 0.05 $ (0.04 ) $ (0.02 ) $ 0.01 $ (0.00 )
*
The sum of the quarterly earnings per share amounts may not equal the annual amount, as the computations of the weighted-average number of
common basic and diluted shares outstanding for each quarter and the full year are performed independently.
16. Subsequent Events
Subsequent events have been evaluated through the date the financial statements were issued and no events or transactions have occurred that require
disclosure in or adjustment to these consolidated financial statements.
72
Table of Contents
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
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 and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of the Form 10-K for the period ended December 31, 2014, 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 December 31, 2014. 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 fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act, as a process designed by, or under the supervision of,
a company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
73
Table of Contents
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria for effective control
over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commissions.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, our internal control over
financial reporting was effective. Management has reviewed its assessment with the Audit Committee.
The independent registered public accounting firm, BDO USA, LLP, has audited our consolidated financial statements and has issued an attestation
report on our internal controls over financial reporting as of December 31, 2014, which is included herein.
74
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TechTarget, Inc.
Newton, Massachusetts
We have audited TechTarget, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
TechTarget, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, TechTarget, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on
the COSO criteria .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance
sheets of TechTarget, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2014 and our report dated March 13, 2015 expressed an unqualified
opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 13, 2015
75
Table of Contents
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Incorporated by reference from the information in the Company’s proxy statement for the 2015 annual meeting of stockholders, which the Company
intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
Item 11.
Executive Compensation.
Incorporated by reference from the information in the Company’s proxy statement for the 2015 annual meeting of stockholders, which the Company
intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Incorporated by reference from the information in the Company’s proxy statement for the 2015 annual meeting of stockholders, which the Company
intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference from the information in the Company’s proxy statement for the 2015 annual meeting of stockholders, which the Company
intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
Item 14.
Principal Accountant Fees and Services.
Incorporated by reference from the information in the Company’s proxy statement for the 2015 annual meeting of stockholders, which the Company
intends to file with the SEC within 120 days of the end of the fiscal year to which this report relates.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a)(1) Financial Statements are filed as part of this Annual Report on Form 10-K. The following consolidated financial statements are included in
Item 8:
•
•
•
•
•
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedules have been omitted because they are not required or because the required information is given in the Consolidated
Financial Statements or Notes thereto.
(a)(3) Exhibit Index.
(b) The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Annual Report on Form 10-K and are
incorporated into this item by reference.
76
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 13, 2015
By:
/s/ GREG STRAKOSCH
Greg Strakosch
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ GREG STRAKOSCH
Greg Strakosch
/s/ JANICE KELLIHER
Janice Kelliher
/s/ ROBERT D. BURKE
Robert D. Burke
/s/ LEONARD FORMAN
Leonard Forman
/s/ JAY C. HOAG
Jay C. Hoag
/s/ BRUCE LEVENSON
Bruce Levenson
/s/ ROGER M. MARINO
Roger M. Marino
Chief Executive Officer and Director
(Principal executive officer)
Chief Financial Officer and Treasurer
(Principal financial and accounting officer)
Director
Director
Director
Director
Director
77
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
Table of Contents
EXHIBIT INDEX - TO BE UPDATED
Exhibit
Number
3.1
3.2
Articles of Incorporation and By-Laws
Description
Incorporated by Reference to
Form or
Schedule
Exhibit
No.
Filing
Date
with SEC
SEC File
Number
Fourth Amended and Restated Certificate of Incorporation of the Registrant
10-Q 3.1 11/13/2007 001-33472
Amended and Restated Bylaws of the Registrant
S-1/A 3.3 3/20/2007 333-140503
Instruments Defining the Rights of Security Holders
4.1
Specimen Stock Certificate for shares of the Registrant’s Common Stock
S-1/A 4.1 4/10/2007 333-140503
Material Contracts
10.1
10.2
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
Second Amended and Restated Investors’ Rights Agreement by and among the Registrant,
the Investors named therein and SG Cowen Securities Corporation, dated as of December 17,
2004
S-1
10.1 2/07/2007 333-140503
Form of Indemnification Agreement between the Registrant and its Directors and Officers
S-1/A 10.2 5/15/2007 333-140503
2007 Stock Option and Incentive Plan
S-1/A 10.3 4/20/2007 333-140503
Form of Incentive Stock Option Agreement under the 2007 Stock Option and Incentive Plan S-1/A 10.4 4/20/2007 333-140503
Form of Non-Qualified Stock Option Agreement under the 2007 Stock Option and Incentive
Plan
S-1/A 10.5 4/20/2007 333-140503
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors
S-1/A 10.5.1 4/27/2007 333-140503
Form of Restricted Stock Agreement under the 2007 Stock Option and Incentive Plan
S-1/A 10.6 4/20/2007 333-140503
Form of Restricted Stock Unit Agreement under the 2007 Stock Option and Incentive Plan
10-K 10.8 3/31/2008 001-33472
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the Registrant
and Kevin Beam
10-K 10.9 3/31/2008 001-33472
10.10#
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the Registrant
and Don Hawk
10-K 10.10 3/31/2008 001-33472
78
Table of Contents
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
10.17#
10.18
10.19#
10.20#
10.21#
10.22
10.23
10.24
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the Registrant
and Greg Strakosch
Executive Incentive Bonus Plan
1999 Stock Option Plan
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan (for
grants prior to September 27, 2006)
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan (for
grants on or after September 27, 2006)
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan (for
grants to executives)
10-K
10.13 3/31/2008 001-33472
S-1/A 10.7 4/20/2007 333-140503
S-1
10.8 2/07/2007 333-140503
S-1
10.9 2/07/2007 333-140503
S-1
10.10 2/07/2007 333-140503
S-1/A 10.10.1 5/01/2007 333-140503
Form of Nonqualified Stock Option Grant Agreement under the 1999 Stock Option Plan
S-1
10.11 2/07/2007 333-140503
Credit Facility Agreement between the Registrant and Citizens Bank of Massachusetts, dated
August 30, 2006
S-1
10.16 2/07/2007 333-140503
Amended and Restated Employment Agreement, dated January 17, 2008, by and between the
Registrant and Greg Strakosch
10-K
10.25 3/31/2008 001-33472
Amended and Restated Employment Agreement, dated January 17, 2008, by and between the
Registrant and Don Hawk
10-K
10.26 3/31/2008 001-33472
Amended and Restated Employment Agreement, dated January 17, 2008, by and between the
Registrant and Kevin Beam
10-K
10.28 3/31/2008 001-33472
Lease Agreement by and between MA-Riverside Project L.L.C., as landlord and TechTarget,
Inc., as tenant
8-K
10.1 8/7/2009 001-33472
First Amendment to Lease Agreement, by and between the Registrant and MA-Riverside
Project L.L.C. for the premises located at One Riverside Center, 275 Grove Street, Newton,
Massachusetts, dated November 18, 2010
8-K
10.1 11/22/10 001-33472
First Amendment (dated August 30, 2007) to Credit Facility Agreement dated August 30,
2006 between the Registrant and Citizens Bank of Massachusetts
10-Q
10.1 2/8/2010 001-33472
79
Table of Contents
10.25
10.26
10.27
10.28
10.29
10.30
10.31#
Second Amendment (dated December 18, 2008) to Credit Facility Agreement between the
Registrant and Citizens Bank of Massachusetts, dated August 30, 2006
10-Q 10.2 2/8/2010 001-33472
Third Amendment (dated December 17, 2009) to Credit Facility Agreement dated August 30,
2006 between the Registrant and Citizens Bank of Massachusetts
10-Q 10.3 2/8/2010 001-33472
First Amendment (dated December 17, 2009) to Revolving Promissory Note dated August 30,
2006 between the Registrant and Citizens Bank of Massachusetts
10-Q 10.4 2/8/2010 001-33472
Waiver of Specified Covenants (dated December 17, 2009) for Credit Facility Agreement dated
August 30, 2006 between the Registrant and Citizens Bank of Massachusetts, now known as
RBS Citizens, National Association
Waiver of Specified Covenants (dated January 28, 2010) for Credit Facility Agreement dated
August 30, 2006 between the Registrant and Citizens Bank of Massachusetts, now known as
RBS Citizens, National Association
10-Q 10.5 2/8/2010 001-33472
10-Q 10.6 2/8/2010 001-33472
Fourth Amendment (dated August 30, 2011) to Credit Facility Agreement dated August 30,
2006 between the Registrant and Citizens Bank of Massachusetts
8-K 10.1 9/2/2011 001-33472
Amended and Restated Restricted Stock Unit Agreement, dated August 10, 2009, by and
between the Registrant and Michael Cotoia
10-K 10.33 3/16/2011 001-33472
10.32#
Employment Agreement dated as of January 1, 2012 between the Registrant and Michael Cotoia 8-K 10.1 1/10/2012 001-33472
10.33#
10.34#
Amendment and Waiver to Amended and Restated Employment Agreement between the
Registrant and Kevin Beam (dated January 10, 2012)
Amendment and Waiver to Amended and Restated Employment Agreement between the
Registrant and Don Hawk (dated January 10, 2012)
10-K 10.36 3/15/2012 001-33472
10-K 10.37 3/15/2012 001-33472
10.35#
Employment Agreement between the Registrant and Janice Kelliher (dated May 4, 2012)
8-K 10.1 5/8/2012 001-33472
10.36
Purchase Agreement between the Company and TCV V, LP and TCV Member Fund, LP, dated
December 9, 2014
8-K 10.1 12/9/14 001-33472
80
Table of Contents
*21.1
*23.1
*31.1
*31.2
*32.1
List of Subsidiaries
Consent of BDO USA, LLP
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
amended.
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
amended.
Certification by Chief Executive Officer and Chief Financial Officer 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 (1)
101.SCH
XBRL Taxonomy Extension Schema Document (1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (1)
Filed herewith.
*
# Management contract or compensatory plan or arrangement filed as an Exhibit to this report pursuant to 15(a) and 15(c) of Form 10-K.
(1) Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated
Balance Sheets as of December 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Comprehensive Income (Loss) for the Years ended
December 31, 2014, December 31, 2013 and December 31, 2011, (iii) Consolidated Statements of Stockholders’ Equity for the Years ended
December 31, 2014, December 31, 2013 and December 31, 2012, (iv) Consolidated Statements of Cash Flows for the Years ended December 31,
2014, December 31, 2013 and December 31, 2012, and (v) Notes to Consolidated Financial Statements.
81
Subsidiary Legal Name
Bitpipe, Inc.
TechTarget Securities Corporation
TechTarget Limited
KnowledgeStorm, Inc.
TechTarget (HK) Limited
TechTarget (Beijing) Information Technology
Consulting Company, Limited
TechTarget (Australia) Pty Ltd
TechTarget (Singapore) PTE. Ltd.
E-Magine Médias SAS
TechTarget Germany GmbH
TechTarget, Inc.
List of Subsidiaries
Exhibit 21.1
Employer
ID Number % Owned
04-3442108
20-1921630
NA
58-2512952
NA
State/Country
Incorporated
DE
MA
100 %
100 %
100 % United Kingdom
100 %
100 %
DE
Hong Kong
NA
NA
NA
NA
NA
100 %
100 %
100 %
100 %
100 %
China
Australia
Singapore
France
Germany
1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
TechTarget, Inc.
Newton, Massachusetts
We hereby consent to the incorporation by reference in the Registration Statements on Form S3 (No. 333-181187 and 333-200080) and Form S-8 (No. 333-
145785 and 333-202051) of TechTarget, Inc. of our reports dated March 13, 2015, relating to the consolidated financial statements and the effectiveness of
TechTarget, Inc.’s internal control over financial reporting, which appear in this Form 10K.
/s/ BDO USA, LLP
Boston, Massachusetts
March 13, 2015
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I,
1.
2.
3.
4.
Greg Strakosch, certify that:
I have reviewed this Annual Report on Form 10-K of TechTarget, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 13, 2015
/s/ GREG STRAKOSCH
Greg Strakosch
Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Janice Kelliher, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of TechTarget, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 13, 2015
/s/ JANICE KELLIHER
Janice Kelliher
Chief Financial Officer and Treasure r
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Each of Greg Strakosch and Janice Kelliher hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, in his/her capacity as Chief Executive Officer and Chief Financial Officer and Treasurer, respectively of TechTarget, Inc. (the
Company), that, to his/her knowledge, the Annual Report of the Company on Form 10-K for the period ended December 31, 2014 as filed with the
Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 13, 2015
Date: March 13, 2015
By: /s/ GREG STRAKOSCH
Greg Strakosch
Chief Executive Officer
By: /s/ JANICE KELLIHER
Janice Kelliher
Chief Financial Officer and Treasurer