Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-33472
TechTarget, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware
(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:
Title of each class
Common Stock, $0.001 Par Value
Name of each exchange on which
registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Exchange Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
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 ¨
No x
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 x
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes x
No ¨
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. x
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
¨
¨
(Do not check if a smaller reporting company)
Accelerated Filer
Smaller Reporting Company
x
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $172.2 million as of June 30, 2015 (based on a
closing price of $8.93 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 32,219,287 shares of Common Stock, $0.001 par value per share, outstanding as of February 29, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for the 2016 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, 2015.
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
TABLE OF CONTENTS
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
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
17
30
31
31
31
32
35
38
57
58
87
87
90
90
90
90
90
90
90
92
93
Table of Contents
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. Please refer to our “Forward-Looking Statements” section on page 49.
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 that helps buyers of corporate information technology (“IT”) products and services, and a leading provider of marketing services for the sellers of those
solutions. Our offerings enable IT vendors to identify, reach and influence corporate IT decision makers who are actively researching specific IT purchases. We do
this through customized marketing programs that include data analytics-driven intelligence solutions, demand generation, and brand advertising.
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 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
revenues for 2015, 2014 and 2013 were associated with demand generation advertising, branding campaigns and IT Deal Alert™.
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, 2015, 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 had approximately 16.9 million and 15.3 million registered members as of December 31, 2015 and 2014, respectively. The size of our registered user
base does not provide direct insight into the number of our customers or our revenues but it does provide context as to the breadth and reach of our content
footprint, which our customers leverage through customized marketing programs. 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. We have developed a broad customer base, and
delivered advertising campaigns to approximately 1,400 customers in 2015.
Please refer to Item 6, Selected Financial Data, for detailed information about our revenues, net income, total assets and other financial results.
Business Trends
Our business is impacted by macro-economic conditions, including foreign currency markets, and IT industry trends. Because most of our customers are IT
vendors, the success of our business is intrinsically linked
3
Table of Contents
to the health, and subject to the market conditions, of the IT industry. The performance of the United States (“U.S.”) dollar against foreign currencies impacts our
results because our largest customers derive a significant amount of revenue from outside the U.S. In years when the U.S. dollar is strong and foreign currencies are
relatively weak, our top 12 largest customers’ revenues and marketing budgets are impacted, which impacts our revenues. Conversely, when the U.S. dollar is weak
against foreign currencies, revenues attributable to our largest customers can increase. Our mid-sized customers (comprised of our next largest 100 customers) and
smaller customers (typically venture-backed start-ups) generally have less exposure to non-U.S. business. Thus, these customers tend to be less impacted by these
trends, which generally results in less of an impact on their marketing budgets and, in turn, our revenues.
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
IT professionals’ reliance on online content to research major purchase decisions, and the transition by IT vendors of marketing expenditures from offline to
online channels, have been consistent trends that have benefitted us. Going forward, there are some important related trends that we believe our business strategy is
well positioned to benefit from:
•
Technology Marketers and Sales Organizations are Increasingly Using Audience Data to Drive Decisions . In the business technology market in
particular, advertisers are in the early stages of making use of data to help them determine prospective accounts that should be prioritized for
marketing or sales follow-up. We believe we are uniquely positioned to provide data around the purchase intent of specific prospective accounts and
potential buyers because of the nature of the content we create and our product focus in these data-driven areas.
•
There is an Increasing Focus on the Ability to Measure and Improve Return on Investment. Our customers 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 IT vendors 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. We believe our offerings will benefit as our customers become more adept at this measurement, and that
the data we are providing will assist in this effort.
Corporate IT Purchasing
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
4
Table of Contents
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 vendors seek high-ROI marketing platforms that provide access to the specific sectors of IT buyers that are aligned with the solutions they seek to sell.
They look for assistance in identifying accounts and individuals who are actively researching upcoming purchases, and distinguishing these prospective buyers
from accounts or individuals who are not yet ready to engage in the buying process. IT vendors also need assistance in influencing these prospective buyers,
through content marketing programs or brand advertising, in order to improve their ability to successfully position their respective solutions against alternatives
being considered.
Our Solution
Our specialized content strategy enables IT vendors to identify, reach and influence corporate IT professionals who are actively researching purchases in
specific IT sectors. 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 had approximately 16.9 million registered members as of December 31, 2015. 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 Customer Relationships. We have developed a broad customer base. During 2015, we delivered marketing services programs for approximately
1,400 customers.
Substantial Experience in Online Content Creation and Marketing. We have over 16 years of experience in developing our online media content, with
a focus on providing targeted information to
5
Table of Contents
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 customers’ ROI by allowing us to deliver more qualified prospects.
•
•
Significant Brand Recognition Among IT Vendors and IT Professionals. Our brand is well-recognized by IT vendors 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.
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
offerings 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
•
Provides Unique Data about In-Market Prospects. Our Activity Intelligence product platform leverages our unique purchase-support content and large
base of targeted IT professional users to provide IT vendors with data to help them more effectively identify prospective buyers. Vendors who are
increasingly making use of data to drive their marketing and sales strategies make use of our offerings as a key input to driving their progress against
this objective.
•
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
6
Table of Contents
we collect about their product interests, we are able to target further those registered members most likely to be of value to IT vendors, and offer
marketing services programs that help influence these prospective buyers.
•
•
•
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. We leverage this data to provide IT vendors with intelligence that helps them follow up with prospects more effectively and efficiently,
improving their ROI on their marketing expenditures with us.
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 Innovate in the Area of Data-Enabled Marketing Services. We believe our ability to leverage our content and audience to identify in-
market prospective buyers is a core competency and a key driver of our future growth. Our IT Deal Alert suite of offerings, built on our Activity
Intelligence product platform, consists of multiple recently developed products and services that provide IT vendors with data-enabled solutions. We
intend to further develop our existing product offerings with new features, and launch additional offerings that extend our capabilities for our
customers.
Expand into Complementary Sectors. We intend to complement our current offerings and content 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 U.S. We have pursued this strategy by launching our own websites directed at users in the United Kingdom, India, Spain, France,
China, Australia, and Singapore, or by acquiring properties or companies with properties. We further expanded by acquiring the Computer Weekly and
MicroScope online properties in the United Kingdom and E-Magine Médias SAS, which we call LeMagIT, in France. More recently, we launched
German and Portuguese language websites as well as websites directed towards 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 2015, approximately 32% of
7
Table of Contents
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
product 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.
Platform and 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
8
Table of Contents
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
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,
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
9
Table of Contents
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.
SearchConvergedIT.com covers converged and hyper-converged infrastructure solutions.
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. SearchMobileComputing.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.
•
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.
InternetofThingsAgenda.com covers the implications of the emergence of the Internet of Things upon information technology infrastructure and
strategy.
10
Table of Contents
•
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, SearchSalesforce.com,
SearchOracle.com, SearchSAP.com, SearchFinancialApplications.com, SearchSQLServer 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 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.
11
Table of Contents
•
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.
Product Offerings
We use online and a select number of face-to-face event offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT
decision makers. The following is a description of the products and services we offer:
Online Offerings
IT Deal Alert . IT Deal Alert is a suite of products and services for IT vendors that leverages the detailed purchase intent data that we collect about end-user
IT organizations. Through proprietary scoring methodologies, we use this data to help our customers identify and prioritize accounts whose content consumption
around specific IT topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile
accounts’ upcoming purchase plans.
•
•
•
•
IT Deal Alert: Qualified Sales Opportunities™. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects,
including information on scope and purchase considerations in over 100 technology-specific segments.
IT Deal Alert: Priority Engine™ . Priority Engine 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 300
technology-specific segments.
IT Deal Alert: Deal Data™ . 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.
IT Deal Alert: TechTarget Research™. TechTarget Research is a newly launched subscription product that sources proprietary information about
purchase transactions from IT professionals who are making and have recently completed these purchases. The offering provides data on market
trends, pricing dynamics and vendor win/loss and displacement trends.
Core Online . Our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to
generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.
Demand Solutions . Our suite of demand solutions offerings allows IT vendors to maximize ROI by capturing qualified sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our demand solutions campaigns offer the Activity Intelligence Dashboard, a 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. Demand solutions offerings may also include an additional service, TechTarget Re-Engage™, which helps both
technology marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate
engagement with specific accounts.
12
Table of Contents
Our demand solutions offerings may also include the following program components:
•
•
White Papers. White papers are technical documents created by IT vendors to describe business or technical problems which are addressed by the
vendors’ products or services. In a program that includes demand solutions, we post white papers on our relevant websites and our users receive
targeted promotions about these content assets. Prior to viewing white papers, our registered members and visitors supply their corporate contact
information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are
supplied to the vendor in real time through our proprietary lead management software.
Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcasts, podcasts, videocasts, virtual trade shows and similar content bring informational
sessions directly to attendees’ desktops and mobile devices. As is the case with white papers, our users supply their corporate contact and qualification
information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to
the registrant information and visibility before, during and after the event.
•
Content Sponsorships . IT vendors, or groups of vendors, pay us to sponsor independent editorially created content vehicles on specific technology
topics where the registrant information is then provided to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors
in a single segment, with the registrant information provided to all participating sponsors. Because these offerings are editorially driven, our customers
get the benefit of association with independently created content as well as access to qualified sales leads that are researching the topic.
Brand Solutions . Our suite of brand solutions offerings provides IT vendors exposure to targeted audiences of IT professionals actively researching
information related to their products and services. We leverage our Activity Intelligence product framework to allow for significant segmentation and targeting of
audiences that are accessed through these programs. Components of brand programs may include:
•
•
On-Network Branding . These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites
we operate. Programs may include specific sites, or audience segments across our sites.
Off-Network Branding . Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are
visiting other websites on the Internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against
our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.
•
Microsites . We have a range of solutions that create stand-alone websites for IT vendors, or “embedded” websites that exist within the context of our
existing websites, to enable a more immersive experience for IT professionals with the content and brand messaging of the vendor.
Custom Content Creation . We will sometimes create white papers, case studies, webcasts or videos to our customers’ specifications through our Custom
Content team. These customized content assets are then promoted to our audience within a demand solutions program.
Events
We operate a select number of face-to-face events, the majority of which 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
13
Table of Contents
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 products and services are generally delivered under short-term contracts that run
for the length of a given advertising program, typically less than six months. We have developed a broad customer base and delivered campaigns to approximately
1,400 active advertisers in 2015. During 2015, no single customer represented 10% or more of total revenues.
See 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
We have 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 product and 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, 2015, our sales and marketing staff consisted of approximately 320 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.
14
Table of Contents
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, 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
The market for IT vendor spend is highly competitive, and in each of the sectors we serve as well as across the products and services we offer, our primary
competitors are media companies that produce content specifically for IT professionals. Our primary competitors, 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 IT vendors. 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. We also 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 policy 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 policy discloses 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 policy also explains 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 consistent with our privacy policy 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 policy, as well as in compliance with 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.
15
Table of Contents
CAN-SPAM Act. The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (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. The U.S. Federal Trade Commission (the “FTC”)
has issued 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 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, the FTC has published 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. 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, the FTC has 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. The FTC has also 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.
Privacy. In addition, the European Union and its member states 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 countries 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 requires informed consent for the placement of a cookie on a user device.
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.
16
Table of Contents
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 U.S. and elsewhere. Currently, our
TechTarget trademark and logo, as well as certain other marks and logos, are registered federally in the U.S. and selected foreign jurisdictions and we have applied
for U.S. and foreign registrations for various other marks. In addition, we have registered over 1,600 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.
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.
Employees
As of December 31, 2015, we had 696 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 introduce new products, and the historical decrease in advertising and events activity in summer months.
Events revenues also 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 do not vary directly with revenues, has an impact on the cost of online revenues, selling and marketing, product
development, and general and administrative expenses as a percentage of revenues in each calendar quarter during the year.
The majority of our expenses are personnel-related and include salaries, stock-based compensation, benefits and incentive-based compensation plan
expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period.
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, 2015. 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:
•
variations in expenditures by advertisers due to budgetary constraints;
17
Table of Contents
•
•
•
•
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.
In addition, the advertising budgets of our customers may fluctuate as a result of:
•
•
•
•
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 and service suite.
We sell a suite of products and services called IT Deal Alert, which is based on our Activity Intelligence analytics. The IT Deal Alert suite currently
consists primarily of Priority Engine, TechTarget Research, Qualified Sales Opportunities and Deal Data. Our increase in revenues in the year ended December 31,
2015, compared to the comparable period of 2014, 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 suite, or the failure of our current or new IT Deal Alert products and services 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 suite, which could also result in reduced sales for those product offerings.
18
Table of Contents
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 products and 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:
•
•
•
•
•
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.
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
19
Table of Contents
result listings at all. Although we could mitigate certain 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 24% of our revenues for the year ended December 31, 2015 were derived from customers with billing addresses outside of the U.S.
Approximately 32% of our revenues were derived from international 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
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
20
Table of Contents
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 services, including 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
CBS Interactive/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 responded, 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, demand 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
21
Table of Contents
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.
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:
•
•
•
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 product and 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:
•
•
•
•
•
•
•
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 products and
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.
22
Table of Contents
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 U.S. 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 in 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.
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 U.S. 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 U.S. 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 U.S. 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.
23
Table of Contents
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 U.S. 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.
Changes in laws and standards relating to marketing, data collection and use, and the privacy of Internet users could impact our ability to conduct our
business and thereby decrease our advertising revenues.
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.
24
Table of Contents
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.
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.
In addition, the European Union and its member states and Canada have regulations dealing with the collection and use of personal information
obtained from their citizens. Regulations in these jurisdictions have focused on the collection, transfer, 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.
U.S. companies have, since 2000, relied on the Department of Commerce Safe Harbor Principles and self-certification process in order to transfer and
process the personal data of people in the European Union in a manner that the European Union, until recently, deemed adequate to protect the security of such
information. Recently, the European Court of Justice declared that the Safe Harbor was no longer valid. U.S. and European Union lawmakers in February 2016
announced a replacement for the Safe Harbor, called the EU-U.S. Privacy Shield Framework Principles, or Privacy Shield. The Privacy Shield is expected to be
deemed adequate by the European Commission to protect the transfer of personal data from the European Union to the U.S. However, there is no assurance that this
will be the case, or when this will happen. We are in the process of evaluating what, if any, changes will be required to be made by us to allow reliance on the
Privacy Shield and how, if at all, our business and operations will be impacted.
U.S. 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 our research activities, including our efforts
to understand our users’ Internet usage. Such actions may have a chilling effect on businesses like ours that collect or use online usage
25
Table of Contents
information generally, or may 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 protection features and options, they
have the potential to affect our business negatively.
We believe that we are in material compliance with all laws and regulations that are applicable to us. As referenced above, these regulations and laws
may be modified and new laws may be enacted in the future that may apply to us and affect our business. Further, data protection authorities may interpret existing
laws in new ways. We may deploy new products and services from time to time, which may also require us to change our compliance practices. 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 materially affect our business and results of operations.
Increased exposure from loss of personal information due to data breaches and hacks could impose significant additional costs on us.
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. 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. 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.
In addition, many states and foreign jurisdictions in which we operate have enacted regulations requiring us to notify customers and, in some cases,
governmental authorities, 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. Additionally, increasing regulatory demands are requiring us to provide heightened
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. Also, data breaches could expose us to a risk of loss or
litigation and possible liability from third parties or others, which could have an adverse impact on our business.
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
26
Table of Contents
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 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 that 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 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. The Federal Communications
Commission has 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. This regulatory environment, coupled with the potentially significant political and economic power of local network operators, could cause
us to experience discriminatory or anti-competitive practices that could impede our growth, cause us
27
Table of Contents
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 revenues 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 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 $93.7 million of goodwill and $1.4 million of net intangible assets as of December 31, 2015. 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, 2015. We evaluate other intangible assets subject to amortization
28
Table of Contents
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 on Form 10-K, 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;
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.
29
Table of Contents
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 15.3 million shares of
our common stock, which represents 48% of our outstanding shares as of December 31, 2015. 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 48% of our outstanding common stock. These
stockholders, if they act together, could exert substantial influence over matters requiring approval by our 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.
30
Table of Contents
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 “Newton Lease”).
The Newton Lease commenced in February 2010 and has a term of ten years. In November 2010, the Newton Lease was amended to include an additional 8,400
square feet of office space (the “Amended Newton Lease”). The Amended Newton Lease commenced in March 2011 and runs concurrently with the term of the
Newton Lease. We are receiving certain rent concessions over the life of the Newton Lease as well as the Amended Newton Lease. In July 2015, the Newton Lease
was again amended to include an additional 14,203 square feet of office space (the “Second Amended Newton Lease”). The Second Amended Newton Lease
commenced in the first quarter of 2016 and runs concurrently with the term of the Newton Lease. There are no rent concessions related to the Second Amended
Newton Lease, and all rent concessions which were part of the Newton Lease and Amended Newton Lease remain unchanged.
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.
Item 4.
Mine Safety Disclosures
Not applicable.
31
Table of Contents
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 2015 and 2014:
2015
Quarter ended March 31, 2015
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Quarter ended December 31, 2015
2014
Quarter ended March 31, 2014
Quarter ended June 30, 2014
Quarter ended September 30, 2014
Quarter ended December 31, 2014
High
Low
$12.63
$12.04
$10.94
$ 9.60
$ 7.41
$ 9.00
$ 9.11
$11.53
$10.34
$ 8.48
$ 8.43
$ 7.78
$ 6.35
$ 6.14
$ 6.79
$ 8.50
The closing sale price of our common stock, as reported by the Nasdaq Global Market, was $7.01 on February 29, 2016.
Holders
As of February 29, 2016 there were approximately 90 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, 2010 to December 31,
2015, 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, 2010 in our common stock, the Russell 2000 Index and the S&P 500 Media Industry Index and assumes any dividends are reinvested.
32
Table of Contents
COMPARATIVE STOCK PERFORMANCE
Among TechTarget Inc.,
the Russell 2000 Index and
S&P 500 Media Industry Index
TechTarget Inc.
Russell 2000
S&P 500 Media Industry
12/10
12/12
12/11
12/15
100.00 73.64 69.99 86.51 143.38 101.26
100.00 95.82 111.49 154.78 162.35 155.18
100.00 107.69 151.20 229.58 258.28 250.57
12/14
12/13
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.
33
Table of Contents
Issuer Purchases of Equity Securities
The following table provides information about purchases by the Company during the quarter ended December 31, 2015 of equity securities that are
registered by the Company pursuant to Section 12 of the Exchange Act.
Issuer Purchases of Equity Securities
Period
October 1, 2015 – October 31, 2015
November 1, 2015 – November 30, 2015
December 1, 2015 – December 31, 2015
Total
Total
Number of
Shares
Purchased(1)
325,773
317,213
36,110
679,096
Average Price
Paid Per Share
$
$
$
$
9.09*
8.41*
8.76*
8.75
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs(1)
325,773
317,213
36,110
679,096
Approximate
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Plans
or Programs
$ 2,983,110
316,524
$
—
$
—
$
(1) On August 5, 2014, the Board of Directors announced the approval of a Stock Repurchase Program (the “Repurchase 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. In May
2015, the Board of Directors approved an additional $10 million of shares that may be purchased under the Repurchase Program. The Repurchase Program
expired on December 31, 2015. See Note 11 – Stockholders’ Equity and Note 16 – Subsequent Events in the accompanying Notes to Consolidated Financial
Statements for further information related to our Repurchase Program.
Price excludes commission of approximately $0.02 per share.
*
34
Table of Contents
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 Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below.
Years Ended December 31,
2015
2014
(in thousands, except per share data)
2013
2012
2011
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)
Depreciation
Amortization of intangible assets
Restructuring charge
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(2):
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other Data:
Adjusted EBITDA (unaudited)(3)
$105,574
6,252
111,826
$ 97,607
8,596
106,203
$79,709
8,787
88,496
$88,192
11,799
99,991
$ 92,303
13,195
105,498
26,962
2,941
29,903
81,923
43,722
7,680
12,987
3,982
1,382
—
69,753
12,170
(249)
11,921
4,735
7,186
$
24,629
3,418
28,047
78,156
42,836
7,161
14,878
4,060
1,762
—
70,697
7,459
(333)
7,126
3,045
4,081
$
23,362
3,771
27,133
61,363
36,920
6,715
13,916
3,823
2,223
—
63,597
(2,234)
(260)
(2,494)
(657)
$ (1,837)
23,513
4,301
27,814
72,177
36,718
7,521
13,112
3,279
3,351
—
63,981
8,196
13
8,209
4,185
$ 4,024
22,373
4,765
27,138
78,360
39,586
7,688
13,536
2,759
3,976
384
67,929
10,431
(87)
10,344
5,655
4,689
$
$
$
0.22
0.21
$
$
0.12
0.12
$ (0.05)
$ (0.05)
$
$
0.10
0.10
$
$
0.12
0.12
32,963
33,010
37,886
40,211
38,532
34,476
34,641
37,886
40,910
40,567
$ 24,499
$ 21,459
$ 9,598
$20,093
$ 25,417
35
Table of Contents
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 revenues
Cost of events revenues
Selling and marketing
Product development
General and administrative
Total
2015
2014
As of December 31,
2013
(in thousands)
2012
2011
$
34,691
$ 177,859
$
17,858
$ (113,949)
$ 160,001
$ 38,183
$ 177,484
$ 21,638
$ (98,851)
$ 155,846
$ 33,772
$ 176,982
$ 19,920
$ (83,862)
$ 157,062
$ 76,340
$ 220,192
$ 20,878
$ (35,810)
$ 199,314
$ 63,221
$ 209,187
$ 19,512
$ (35,343)
$ 189,675
Years Ended December 31,
2015
2014
$
84
—
3,530
111
2,899
$6,624
$ 116
8
3,287
129
3,792
$7,332
2013
(in thousands)
$ 173
18
2,751
212
2,431
$5,585
2012
2011
$ 202
18
2,888
265
1,894
$5,267
$ 273
91
4,713
443
1,949
$7,469
(2)
(3)
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.”
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
Years Ended December 31,
2015
2014
$ 7,186
249
4,735
3,982
1,382
341
17,875
6,624
—
—
$24,499
$ 4,081
333
3,045
4,060
1,762
308
13,589
7,332
538
—
$21,459
2013
(in thousands)
$(1,837)
260
(657)
3,823
2,223
201
4,013
5,585
—
—
$ 9,598
2012
2011
$ 4,024
(13)
4,185
3,279
3,351
—
14,826
5,267
—
—
$20,093
$ 4,689
87
5,655
2,759
3,976
398
17,564
7,469
—
384
$25,417
Adjusted EBITDA is a non-GAAP financial measure used by management when reviewing our performance. EBITDA represents earnings before net 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 other one-time charges, if any. 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
36
Table of Contents
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 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.
37
Table of Contents
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.” Please
refer to our “Forward-Looking Statements” section on page 49.
Overview
Background
We are a leading provider of specialized online content that helps buyers of corporate IT products and services, and a leading provider of marketing services
for the sellers of those solutions. Our offerings enable IT vendors to identify, reach and influence corporate IT decision makers who are actively researching
specific IT purchases. We do this through customized marketing programs that include data analytics-driven intelligence solutions, demand generation and brand
advertising.
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 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 had approximately 16.9 million and 15.3 million registered members as of December 31, 2015 and 2014, respectively. The size of our registered user
base does not provide direct insight into the number of our customers or our revenues but it does provide context as to the breadth and reach of our content
footprint, which our customers leverage through customized marketing programs. 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. We have developed a broad customer base, and we
delivered advertising campaigns to approximately 1,400 customers in 2015.
Executive Summary
Our revenues for the year ended December 31, 2015 grew approximately 5%, to $111.8 million, compared with the same period in 2014.
Online revenues grew 8% over the prior year, driven primarily by growth in the IT Deal Alert offerings. Despite headwinds caused by the strong U.S. dollar,
online international geo-targeted revenues, where our target audience is outside North America (“International”) grew 12% compared to the prior year, again driven
primarily by IT Deal Alert sales. Overall, IT Deal Alert sales grew 38% in 2015 as compared with 2014. In addition, our international business continues to benefit
from the shift to online tools from traditional print sources by IT professionals.
38
Table of Contents
Gross margin was 73% and 74% for the years ended December 2015 and 2014, respectively. Online gross profit increased by $5.6 million, primarily
attributable to the increase in online revenues as compared to the same period a year ago. Events gross profit decreased by $1.9 million, primarily as a result of the
lower events revenues as compared to the same period in the prior year.
We ended 2015 with Adjusted EBITDA of $24.5 million, which is up 14% from 2014. This growth is primarily driven by the increased revenues as
described above. Adjusted EBITDA, a non-GAAP financial measure, is described further in Item 6, Selected Financial Data.
Due to the impact of the strong U.S. dollar on foreign currency, our large multi-national customers, who generate a significant amount of their revenues
outside the U.S., continue to be cautious. In the year ended December 31, 2015, online revenues from our top 12 global customers, which have the most
international exposure, decreased slightly compared to the same period a year ago. Online revenues from our mid-sized customers (our next largest 100 customers,
who have less exposure internationally) increased by approximately 15% year over year. Revenues attributable to our smaller customers, which tend to be venture
capital-backed start-ups that primarily operate in North America, increased by approximately 21% over the prior year period. All three customer segments
continued to report a challenging environment, and this translated into our customers remaining cautious with their marketing expenditures.
Our key strategic initiatives include:
Geographic – During 2015, approximately 33% of our online revenues were derived from International campaigns. International online revenues
(which also includes IT Deal Alert revenues of $3.8 million as discussed below) increased by approximately 12% in the year ended December 31,
2015 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. Due to the impact of the
strong U.S. dollar on foreign currency, however, our largest customers continue to be cautious.
Product – IT Deal Alert revenues were approximately $23.2 million in the year ended December 31, 2015, up from approximately $16.8 million in
the same period in 2014. This includes International IT Deal Alert revenues of $3.8 million, which is also included in International revenues as
discussed above. In the fourth quarter of 2015, we had over 288 active customers utilizing our IT Deal Alert products and services; this is up from 260
customers in the third quarter of 2015. We expect IT Deal Alert to continue to be a meaningful growth driver into 2016.
Sources of Revenues
We sell customized marketing programs to IT vendors targeting a specific audience within a particular IT sector or sub-sector. We maintain multiple points
of contact with our customers to provide support throughout their organizations and their customers’ IT sales cycles. As a result, our customers often run multiple
advertising programs with us in order to target their desired audience of IT professionals more effectively. There are multiple factors that can impact our customers’
advertising objectives and spending with us, including but not limited to, IT product launches, increases or decreases to their advertising budgets, the timing of key
industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating
sales leads. Our products and services are generally delivered under short-term contracts that run for the length of a given advertising program, typically less than
six months. In the year ended December 31, 2015, demand generation and brand advertising remained our primary sources of revenue, while data analytics-driven
intelligence solutions, driven by growth in our IT Deal Alert products and services, contributed approximately 22% of online revenue as compared with
approximately 17% for the same period in 2014.
39
Table of Contents
The majority of our revenues are derived from the delivery of our online offerings. Online revenue represented 94%, 92% and 90% of total revenues for the
years ended December 31, 2015, 2014 and 2013, respectively.
We use online and a select number of face-to-face event offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT
decision makers. The following is a description of the products and services we offer:
Online Offerings
IT Deal Alert. IT Deal Alert is a suite of products and services for IT vendors that leverages the detailed purchase intent data that we collect about end-user
IT organizations. Through proprietary scoring methodologies, we use this data to help our customers identify and prioritize accounts whose content consumption
around specific IT topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile
accounts’ upcoming purchase plans.
•
•
•
•
IT Deal Alert: Qualified Sales Opportunities. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects, including
information on scope and purchase considerations, in over 100 technology-specific segments.
IT Deal Alert: Priority Engine . Priority Engine 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 300
technology-specific segments.
IT Deal Alert: Deal Data . 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.
IT Deal Alert: TechTarget Research. TechTarget Research is a newly launched subscription product that sources proprietary information about
purchase transactions from IT professionals who are making and have recently completed these purchases. The offering provides data on market
trends, pricing dynamics and vendor win/loss and displacement trends.
Core Online . Our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to
generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.
Demand Solutions . Our suite of demand solutions offerings allows IT vendors to maximize ROI by capturing qualified sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our demand solutions campaigns offer the Activity Intelligence Dashboard, a 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. Demand solutions offerings may also include an additional service, TechTarget Re-Engage, which helps both
technology marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate
engagement with specific accounts.
Our demand solutions offerings may also include the following program components:
•
White Papers. White papers are technical documents created by IT vendors to describe business or technical problems which are addressed by the
vendors’ products or services. In a program that includes demand solutions, we post white papers on our relevant websites and our users receive
targeted promotions about these content assets. Prior to viewing white papers, our registered members
40
Table of Contents
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.
•
Content Sponsorships . IT vendors, or groups of vendors, pay us to sponsor independent editorially created content vehicles on specific technology
topics where the registrant information is then provided to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors
in a single segment, with the registrant information provided to all participating sponsors. Because these offerings are editorially driven, our customers
get the benefit of association with independently created content as well as access to qualified sales leads that are researching the topic.
Brand Solutions . Our suite of brand solutions offerings provides IT vendors exposure to targeted audiences of IT professionals actively researching
information related to their products and services. We leverage our Activity Intelligence product framework to allow for significant segmentation and targeting of
audiences that are accessed through these programs. Components of brand programs may include:
•
•
On-Network Branding . These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites
we operate. Programs may include specific sites, or audience segments across our sites.
Off-Network Branding . Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are
visiting other websites on the Internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against
our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.
•
Microsites . We have a range of solutions that create stand-alone websites for IT vendors, or “embedded” websites that exist within the context of our
existing websites, to enable a more immersive experience for IT professionals with the content and brand messaging of the vendor.
Custom Content Creation . We will sometimes create white papers, case studies, webcasts or videos to our customers’ specifications through our Custom
Content team. These customized content assets are then promoted to our audience within a demand solutions program.
Events
Events revenues represented 6%, 8% and 10% of total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. We operate a select
number of face-to-face events, the majority of which 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.
41
Table of Contents
Revenue growth for the twelve month periods ended December 31, 2015, 2014 and 2013 was as follows ($ in thousands):
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
Twelve Months Ended December 31,
2015
2014
2015 vs.
2014%
change
$105,574
$ 97,607
8%
2013
$79,709
2014 vs.
2013%
change
22%
51,754
19,395
71,149
52,734
14,257
66,991
30,648
3,777
34,425
28,090
2,526
30,616
-2%
36%
6%
9%
50%
12%
52,737
3,537
56,274
23,086
349
23,435
51,754
30,648
82,402
52,734
28,090
80,824
-2%
9%
2%
52,737
23,086
75,823
19,395
3,777
23,172
6,252
$
$111,826
14,257
2,526
16,783
8,596
$
$106,203
36%
50%
38%
-27%
5%
3,537
349
3,886
$ 8,787
$88,496
0%
303%
19%
22%
624%
31%
0%
22%
7%
303%
624%
332%
-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 interest and other expense, net. Personnel-related costs are a significant component of each of these expense categories except for depreciation, amortization
and interest and other expense, net.
Cost of Online Revenues. Cost of online revenues consist primarily of: salaries and related personnel costs; member acquisition expenses (primarily keyword
purchases from leading Internet search sites); freelance writer expenses; website hosting costs; vendor expenses associated with the delivery of webcast, podcast,
videocast and similar content, and other offerings; stock-based compensation expenses; facility expenses and other related overhead.
Cost of Events Revenues. Cost of events revenues consist primarily of: direct expenses, including site, food and beverages for the event attendees and event
speaker expenses; salaries and related personnel costs; travel-related expenses; facilities expenses and other related overhead.
Selling and Marketing. Selling and marketing expenses consist primarily of: salaries and related personnel costs; sales commissions; travel-related expenses;
stock-based compensation expenses; facility expenses and other related overhead. Sales commissions are recorded as expense when earned by the employee, based
on recorded revenue.
42
Table of Contents
Product Development. Product development includes the creation and maintenance of our network of websites, advertiser offerings and technical
infrastructure. Product development expense consists primarily of salaries and related personnel costs; stock-based compensation expenses; facility expenses and
other related overhead.
General and Administrative. General and administrative expenses consist primarily of: salaries and related personnel costs; facility expenses and related
overhead; accounting, legal and other professional fees; and stock-based compensation expenses.
Depreciation. Depreciation expense consists of the depreciation of our property and equipment and other capitalized assets. Depreciation is calculated using
the straight-line method over their estimated useful lives, ranging from two to ten years.
Amortization of Intangible Assets. Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our
acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from 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-
term and long-term investments less any interest expense incurred, including amortization of premiums on our investments. 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 U.S. The preparation of these financial statements requires us to make estimates, judgments and
assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to 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 revenues from the sale of targeted advertising campaigns, which we deliver via our network of websites, data analytics
solutions, 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.
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
43
Table of Contents
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.
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
IT Deal Alert. IT Deal Alert is a suite of products and services for IT which includes Qualified Sales Opportunities, Priority Engine, Deal Data and
TechTarget Research. Qualified Sales Opportunities revenue is recognized when the Qualified Sales Opportunity is delivered to the customer, Priority Engine
revenue is recognized ratably over the duration of the service, Deal Data revenue is recognized upon delivery of the data to the customer and Research revenue is
recognized when the product is delivered.
Core Online. Our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to
generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.
Demand Solutions . As part of our demand solutions campaign offerings, we may guarantee a minimum number of qualified leads to be delivered over the
course of the campaign. We determine the content necessary to achieve performance guarantees. Scheduled end dates of 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
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 during the period in which leads are delivered to our customers and from duration-based campaigns over the
duration of the campaign, which is typically less than six months.
Brand Solutions . Brand solutions consist mostly of banner revenue, which is recognized in the period in which the banner impressions, engagements or
clicks occur and microsite revenue, which is recognized over the period during which the microsites are live.
Custom Content . Custom content revenue is recognized when the creation is completed and delivered to the customer.
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.
44
Table of Contents
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 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, 2015, 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 $1.7 million and $1.0 million at December 31, 2015 and 2014, respectively.
45
Table of Contents
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. 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
2015
47%
6 years
1.67%
— %
3.72
$
Years Ended December 31,
2014
78%
6 years
1.62%
— %
7.22
$
2013
67%
5 years
0.58%
— %
$
3.89
The expected volatility of options granted in 2015, 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. The risk-free interest rate is based on a zero coupon U.S. treasury instrument whose term is consistent with the
expected life of the stock options. 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.
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 $2.9 million, $3.0 million and $3.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We recognize
deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.
Our deferred tax assets are comprised primarily of book to tax differences on stock-based compensation and timing of deductions for deferred rent, accrued
expenses, depreciation and amortization. As of December 31, 2015, we had a California net operating loss (“NOL”) carryforward acquired from Bitpipe of
approximately $0.2 million which expires in 2018. We also had foreign NOL carryforwards of $1.4 million, which may be used to offset future taxable income in
foreign jurisdictions until they expire, through 2020. The deferred tax assets related to the California and foreign NOL carryforwards have been fully offset by a
valuation allowance.
46
Table of Contents
Additionally, we have a $0.2 million federal NOL carryforward that will expire in 2034.
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 outstanding during the period. 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 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 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.
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, net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
47
2015
Years Ended December 31,
2014
($ in thousands)
2013
$105,574
6,252
111,826
94% $ 97,607
8,596
106,203
6
100
92% $79,709
8,787
88,496
8
100
90%
10
100
26,962
2,941
29,903
81,923
24
3
27
73
24,629
3,418
28,047
78,156
23
3
26
74
23,362
3,771
27,133
61,363
27
4
31
69
43,722
7,680
12,987
3,982
1,382
69,753
12,170
(249)
11,921
4,735
7,186
$
39
7
12
4
1
63
10
—
10
4
6% $
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)
42
8
16
4
2
72
(3)
—
(3)
(1)
(2)%
Table of Contents
Comparison of Fiscal Years Ended December 31, 2015 and 2014
Revenues
Revenues:
Online
Events
Total revenues
Years Ended December 31,
2015
2014
Increase
(Decrease)
Percent
Change
($ in thousands)
$105,574
6,252
$111,826
$ 97,607
8,596
$106,203
$
$
7,967
(2,344)
5,623
8%
(27)
5%
Online. Online revenues for the year ended December 31, 2015 (“fiscal 2015”) increased by $8.0 million over the year ended December 31, 2014 (“fiscal
2014”). This increase was primarily attributable to a $6.4 million increase in revenues from new product offerings, primarily IT Deal Alert, and growth of
international core online.
Events. The decrease in events revenues is primarily due to a reduction in the number of custom and editorial events held during the period.
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2015
2014
Increase
(Decrease)
Percent
Change
($ in thousands)
$26,962
2,941
$29,903
$81,923
$24,629
3,418
$28,047
$78,156
73%
74%
$
$
$
2,333
(477)
1,856
3,767
9%
(14)
7%
5%
Cost of Online Revenues. The increase in cost of online revenues was primarily attributable to costs related to new product offerings.
Cost of Events Revenues. 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.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage for fiscal 2015
was 73% as compared to 74% for fiscal 2014. Online gross profit increased $5.6 million in fiscal 2015 as compared to the same period in 2014, primarily
attributable to the increase in online revenues as compared to the same period a year ago. Online gross profit percentage decreased to 74% in fiscal 2015 from 75%
in fiscal 2014. Events gross profit decreased by $1.9 million, primarily as a result of the lower events revenues as compared to the same period in the prior year.
Events gross profit percentage decreased to 53% in fiscal 2015 from 60% 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 and product mix.
48
Table of Contents
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 income taxes
2015
$43,722
7,680
12,987
3,982
1,382
$69,753
Years Ended December 31,
Increase
(Decrease)
2014
($ in thousands)
Percent
Change
$42,836
7,161
14,878
4,060
1,762
$70,697
$
$
$
$
886
519
(1,891)
(78)
(380)
(944)
84
1,690
2%
7
(13)
(2)
(22)
(1)%
25%
56%
$ (249)
$ (333)
$ 4,735
$ 3,045
Selling and Marketing. Selling and marketing expenses increased year over year, primarily due to increased investment in product innovation and increased
costs due to international expansion, offset in part by a reduction in variable compensation-related expenses.
Product Development. The increase in product development expense was primarily caused by development efforts toward new products. To a lesser extent,
the increase was 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.
General and Administrative. The decrease in general and administrative expense for the year ended December 31, 2015 compared to the same period in 2014
was primarily due to a $1.2 million decrease in stock-based and other incentive compensation related directly to our 2014 financial results, $0.5 million in fees
related to a secondary public offering in the second quarter of 2014, as well as decreases in legal fees and corporate excise taxes, offset in part by increases in
compensation-related expenses, professional fees and bad debt expense.
Depreciation and Amortization of Intangible Assets. The decrease in depreciation expense is related to certain capitalized internal- use software development
costs becoming fully depreciated early in 2015. The decrease in amortization of intangible assets expense was attributable to certain intangible assets becoming
fully amortized during fiscal 2014 and the first half of 2015.
Interest and Other Expense, Net. The decrease in interest and other expense, net, is primarily due to an increase in interest income, net. Interest income, net
in 2015 was $53,000 compared to interest expense, net of $31,000 in 2014, primarily due to amortization of the discount on the LeMagIT acquisition final
installment payment, which was made in 2014. Other expense, net, which is comprised of foreign currency-related charges due to changes in exchange rates in
countries where we record accounts receivable and accounts payable in the normal course of business, was relatively flat year over year.
Provision for Income Taxes. Our effective tax rate was 40% and 43% for the years ended December 31, 2015 and 2014, respectively. We have permanent
differences that increase our tax expense on income or reduce our tax benefit on loss; the lower rate in 2015 as compared to 2014 is primarily due to a reduction in
non-deductible expenses in the U.S. for 2015. The effective tax rate differs from the statutory rate primarily due to the permanent difference of nondeductible
expenses and state income taxes.
49
Table of Contents
Comparison of Fiscal Years Ended December 31, 2014 and 2013
Revenues
Revenues:
Online
Events
Total revenues
Years Ended December 31,
2014
2013
Increase
(Decrease)
Percent
Change
($ in thousands)
$ 97,607
8,596
$106,203
$79,709
8,787
$88,496
$ 17,898
(191)
$ 17,707
22%
(2)
20%
Online. Online revenues for the year ended December 31, 2014 represented a $17.9 million increase over the year ended December 31, 2013 (“fiscal 2013”).
This increase was primarily attributable to a $12.9 million increase in revenues from new product offerings, primarily IT Deal Alert, and growth of international
core online.
Events. The decrease in events revenues is primarily due to a reduction in the number of conferences and editorial events held during the period, partially
offset by an increase in the number of custom events that we conducted.
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2014
2013
Increase
(Decrease)
Percent
Change
($ in thousands)
$24,629
3,418
$28,047
$78,156
$23,362
3,771
$27,133
$61,363
$
$
1,267
(353)
914
$ 16,793
74%
69%
5%
(9)
3%
27%
Cost of Online Revenues. The increase in cost of online revenues was primarily attributable to costs related to new product offerings.
Cost of Events Revenues. 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.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. 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 earlier,
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. Gross profit percentage for fiscal 2014 was 74% as compared to 69% for fiscal 2013. 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.
50
Table of Contents
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
2014
$42,836
7,161
14,878
4,060
1,762
$70,697
Years Ended December 31,
Increase
(Decrease)
2013
($ in thousands)
Percent
Change
$36,920
6,715
13,916
3,823
2,223
$63,597
$
$
$
$
5,916
446
962
237
(461)
7,100
(73)
3,702
16%
7
7
6
(21)
11%
(28)%
(563)%
$ (333)
$ (260)
$ 3,045
$ (657)
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, 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 (Benefit from) Income Taxes. Our effective tax rate was 43% and 26% for the years ended December 31, 2014 and 2013, respectively. We have
permanent differences that increase our tax expense on income or reduce our 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.
51
Table of Contents
Selected Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2015. 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 on Form 10-K. 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
Interest and other (expense) income, net
(Loss) income before (benefit from) provision for income taxes
(Benefit from) provision for income taxes
Net income
Net income per share – basic
Net income per share – diluted
Seasonality
For the Three Months Ended
2015
2014
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
(in thousands, except per share data)
$23,048 $27,736 $27,066 $27,724 $22,080 $23,652 $24,218 $27,657
897 2,496 2,214 2,989
23,658 29,757 29,007 29,404 22,977 26,148 26,432 30,646
610 2,021 1,941 1,680
455
6,529 6,719 6,802 6,912 6,090 6,149 5,949 6,441
805 1,087
6,984 7,596 7,512 7,811 6,637 7,128 6,754 7,528
16,674 22,161 21,495 21,593 16,340 19,020 19,678 23,118
899
710
979
547
877
373
999
337
10,341 10,958 11,526 10,897 9,746 10,007 10,964 12,119
1,776 2,032 1,915 1,957 1,605 1,742 1,854 1,960
3,020 3,591 3,265 3,111 3,352 3,884 3,628 4,014
989 1,012 1,024 1,035
1,008 1,016
406
451
344
16,518 17,941 18,042 17,252 16,143 17,099 17,921 19,534
197 1,921 1,757 3,584
10
(212)
207 2,020 1,527 3,372
589 1,667
717
72
938 $ 1,705
135 $ 1,303 $
156 4,220 3,453 4,341
(127)
(163)
(7) 4,470 3,244 4,214
(354) 1,641 1,203 2,245
347 $ 2,829 $ 2,041 $ 1,969 $
959
328
(230)
(209)
451
454
250
99
$
$
$
0.01 $
0.09 $
0.06 $
0.06 $
0.00 $
0.04 $
0.03 $
0.05
0.01 $
0.08 $
0.06 $
0.06 $
0.00 $
0.04 $
0.03 $
0.05
The timing of our revenues is affected by seasonal factors. Our revenues are seasonal primarily as a result of the annual budget approval process of many of
our customers, the normal timing at which our customers introduce new products, and the historical decrease in advertising and events activity in summer months.
Events revenues also 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 do not vary directly with revenues, has an impact on the cost of online revenues, selling and marketing, product
development, and general and administrative expenses as a percentage of revenues in each calendar quarter during the year.
52
Table of Contents
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.
Liquidity and Capital Resources
Resources
At December 31, 2015, our cash, cash equivalents and investments totaled $34.7 million. Our cash, cash equivalents and investments decreased $3.5 million
during fiscal 2015, primarily from the repurchase of shares under our stock repurchase plan and purchases of property and equipment and other capitalized assets,
offset by cash generated by our operations and cash received from employee stock option exercises. 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
As of December 31,
2015
$34,691
$26,549
2014
(in thousands)
$38,183
$23,200
2013
$33,772
$22,116
Our cash, cash equivalents and investments at December 31, 2015 were held for working capital purposes and were invested primarily in money market
accounts, municipal bonds and government agency bonds and, to a lesser extent, corporate bonds. We do not enter into investments for trading or speculative
purposes.
Accounts Receivable, Net
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on
the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days sales outstanding,
(“DSO”), as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at quarter end divided by total revenues for the
applicable period, multiplied by the number of days in the applicable period. DSO was 83 days at December 31, 2015, 70 days at December 31, 2014 and 86 days
at December 31, 2013. The change in DSO year over year is primarily due to the timing of payments from all classes of customers.
Cash Flows
Cash provided by operating activities
Cash (used in) provided by investing activities
Cash used in financing activities
53
Years Ended December 31,
2015
$ 11,263
$ (4,933)
$ (10,805)
2014
(in thousands)
$18,217
$ (4,733)
$ (9,535)
2013
$ 8,275
$ 4,645
$ (45,986)
Table of Contents
Operating Activities
Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, the
provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash provided by
operating activities for the year ended December 31, 2015 was $11.3 million compared to $18.2 million and $8.3 million in the years ended December 31, 2014 and
2013, respectively.
The decrease in cash provided by operations in fiscal 2015 compared to fiscal 2014 was primarily a result of changes in operating assets and liabilities of
$(7.5) million in 2015 compared to $0.8 million in 2014. Significant components of the changes in assets and liabilities in 2015 included an increase in accounts
receivable of $4.2 million, as evidenced by the increase in DSO during the period, a $1.6 million decrease in income taxes payable, a $0.9 million decrease in
accounts payable and a $1.0 million decrease in accrued compensation, primarily resulting from annual bonuses from 2014 that were paid in the first quarter of
2015. These changes were offset in part by an increase in accrued expenses of $1.8 million, primarily related to tax withholdings on net share settlements, and an
increase in deferred revenue of $0.7 million. Additionally, tax benefits relating to excess stock-based compensation deductions are presented as financing cash
flows. Cash flows from tax benefits related to stock-based compensation deductions were $3.2 million in 2015 as compared to $0.7 million in 2014.
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 net income 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 were 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.
Investing Activities
Cash used in investing activities in the year ended December 31, 2015 was $4.9 million; $3.7 million for the purchase of property and equipment and other
capitalized assets, made up primarily of website development costs, computer equipment and related software and internal-use development costs, and $1.2 million
for the conversion of cash equivalents into short-term and long-term investments.
Cash used in investing activities in the year ended December 31, 2014 was $4.7 million; $3.8 million for the purchase of property and equipment and other
capitalized assets, made up primarily of website development costs, computer equipment and related software and internal-use development costs, and $0.9 million
for the conversion of cash equivalents into short-term and long-term investments.
Cash provided by investing activities in the year ended December 31, 2013 was $4.6 million; $9.1 million for the conversion of short-term and long-term
investments into cash equivalents, offset in part by $4.5 million used for the purchase of property and equipment and other capitalized assets, made up primarily of
website development costs, computer equipment and related software and internal-use development costs.
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 $3.7 million, $3.8 million and $4.5
million for the years ended December 31, 2015, 2014 and 2013, respectively. A majority of our capital expenditures in 2015 were internal-use development costs
and, to a lesser extent, computer equipment and related software.
54
Table of Contents
We expect to spend approximately $4.3 million in capital expenditures in 2016, 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 stock options in the amounts of $2.8 million, $4.8 million and $1.6 million in the years ended December 31,
2015, 2014, and 2013, respectively. Additionally, tax benefits relating to excess stock-based compensation deductions are presented as financing cash flows. Cash
flows from tax benefits related to stock-based compensation deductions were $3.2 million, $0.7 million, and $0.5 million in the years ended December 31, 2015,
2014, and 2013, respectively. These inflows were offset by $15 million used for the repurchase of shares under our stock repurchase program and $1.7 million
related to tax withholdings on net share settlements in 2015.
Share Repurchases
In August 2014, we announced that our Board of Directors authorized a $20 million stock repurchase program (the “Repurchase Program”). Under the
Repurchase Program, we were authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. In May
2015, the Board of Directors amended the program to authorize an additional $10 million. During the year ended December 31, 2015 we repurchased 1,671,687
shares of common stock for an aggregate purchase price of approximately $15 million pursuant to the Repurchase Program. During the year ended December 31,
2014 we repurchased 1,551,224 shares of common stock for an aggregate purchase price of approximately $15 million pursuant to the Repurchase Program. The
Repurchase Program expired on December 31, 2015.
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 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
Repurchase Program 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 Operations and 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”).
55
Table of Contents
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 was
recorded as part of stock-based compensation expense in our Consolidated Statement of Operations and Comprehensive Income (Loss). Because the shares were
delivered in 2015, there were no such accruals as of December 31, 2015.
Term Loan and Credit Facility Borrowings
We currently have a discretionary $5.0 million demand revolving line available to us (the “Amended and Restated Credit Agreement”). No borrowings have
been made against this line as of December 31, 2015 (see Note 8 to the Consolidated Financial Statements).
Contractual Obligations and Commitments
As of December 31, 2015, 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, 2015:
Contractual Obligations
Operating leases
Payments Due By Period (in thousands)
Total
$18,804
Less than
1 Year
$ 4,803
1–3 Years
$ 8,824
3–5 Years
$ 5,177
More than
5 Years
$ —
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.
Forward Looking Statements
Certain information included in this Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in
this Annual Report on Form 10-K that address activities, events or developments which we expect will or may occur in the future are forward-looking statements,
including statements regarding the intent, belief or current expectations of the Company and members of our management team. The words “will,” “believe,”
“intend,” “expect,” “anticipate,” “project,” “estimate,” “predict” and similar expressions are also intended to identify
56
Table of Contents
forward-looking statements. Such statements may include those regarding guidance on our future financial results and other projections or measures of our future
performance; our expectations concerning market opportunities and our ability to capitalize on them; and the amount and timing of the benefits expected from
acquisitions, new products or services and other potential sources of additional revenues. Such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. These statements speak only as of the date of this Annual Report on Form 10-K and are based on our current plans and
expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such
forward-looking statements. These risks and uncertainties include, but are not limited to, those relating to: market acceptance of our products and services,
including continued increased sales of our IT Deal Alert offerings and continued increased international growth; relationships with customers, strategic partners and
employees; difficulties in integrating acquired businesses; changes in economic or regulatory conditions or other trends affecting the Internet, Internet advertising
and information technology industries; and other matters included in our filings with the Securities and Exchange Commission, including those detailed under Part
I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 2015. Actual results may differ materially from those
contemplated by the forward-looking statements. We undertake no obligation to update our forward-looking statements to reflect future events or circumstances.
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 (“PRC”), and a variable interest entity in Beijing, PRC. Approximately 24% of our
revenues for the year ended December 31, 2015 were derived from customers with billing addresses outside of the United States and our foreign exchange
gains/losses were not significant. We currently believe our exposure to foreign currency exchange rate fluctuations is financially immaterial and therefore have not
entered into foreign currency hedging transactions. We continue to review this issue and may consider hedging certain foreign exchange risks through the use of
currency futures or options in the future. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued
international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of
operations.
Interest Rate Risk
At December 31, 2015, we had cash, cash equivalents and investments totaling $34.7 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 would have to pay if we were to utilize our Amended and Restated Credit
Agreement. The advances under this credit facility bear a variable rate of interest determined as a function of the lender’s prime rate or London Interbank Offered
Rate (“LIBOR”) (see Note 8 to the Consolidated Financial Statements). At December 31, 2015, there were no amounts outstanding under the Amended and
Restated Credit Agreement.
57
Table of Contents
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, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
58
Page
59
60
61
62
63
64
Table of Contents
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, 2015 and 2014 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, 2015. 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 , 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, 2015, 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 11, 2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 11, 2016
59
Table of Contents
Assets
Current assets:
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2015
2014
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,715 and $1,014 as of December 31, 2015 and 2014,
$ 14,783
10,646
$ 19,275
5,480
respectively
Prepaid taxes
Prepaid expenses and other current assets
Deferred tax assets
Total current assets
Property and equipment, net
Long-term investments
Goodwill
Intangible assets, net
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
Contingent consideration
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; 50,927,426 shares issued and 32,039,853 shares
outstanding at December 31, 2015; 49,587,137 shares issued and 32,371,251 shares outstanding at December 31, 2014
Treasury stock, 18,887,573 and 17,215,886 shares at December 31, 2015 and 2014, respectively, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements.
60
26,549
5,306
2,192
2,317
61,793
8,922
9,262
93,701
1,448
1,893
840
$ 177,859
$
1,807
3,112
675
516
1,326
7,595
15,031
2,245
582
—
—
17,858
23,200
951
1,891
2,674
53,471
9,215
13,428
93,979
2,995
3,230
1,166
$177,484
$
2,733
2,719
3,043
1,088
—
6,940
16,523
2,598
473
1,114
930
21,638
—
—
51
(113,949)
293,003
(322)
(18,782)
160,001
$ 177,859
50
(98,851)
280,702
(87)
(25,968)
155,846
$177,484
TechTarget, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
Table of Contents
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)
Depreciation
Amortization of intangible assets
Total operating expenses
Operating income (loss)
Interest and other expense, net
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Other comprehensive (loss) income, net of tax:
Unrealized gain (loss) on investments (net of tax provision (benefit) of $0, $(17) and $(2), respectively)
Foreign currency translation adjustments
Other comprehensive (loss) income
Comprehensive income (loss)
Net income (loss) per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(1) Amounts include stock-based compensation expense as follows:
Cost of online revenues
Cost of events revenues
Selling and marketing
Product development
General and administrative
See accompanying Notes to Consolidated Financial Statements.
61
For the Years Ended December 31,
2014
2015
2013
$105,574
6,252
111,826
$ 97,607
8,596
106,203
$79,709
8,787
88,496
23,362
3,771
27,133
61,363
36,920
6,715
13,916
3,823
2,223
63,597
(2,234)
(260)
(2,494)
(657)
$ (1,837)
$
(4)
339
335
$ (1,502)
26,962
2,941
29,903
81,923
43,722
7,680
12,987
3,982
1,382
69,753
12,170
(249)
11,921
4,735
7,186
$
$
$
$
$
1
(236)
(235)
6,951
0.22
0.21
24,629
3,418
28,047
78,156
42,836
7,161
14,878
4,060
1,762
70,697
7,459
(333)
7,126
3,045
4,081
$
(30)
(256)
(286)
3,795
$
$
$
$
0.12
0.12
$ (0.05)
$ (0.05)
32,963
33,010
37,886
34,476
34,641
37,886
$
84
—
3,530
111
2,899
$
116
8
3,287
129
3,792
$
173
18
2,751
212
2,431
Accumulated
Additional
Paid-In
Capital
$ 263,426
Other
Comprehensive
(Loss) Income
$
(136)
Accumulated
Deficit
Total
Stockholders’
Equity
$
(28,212)
$
199,314
Table of Contents
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Common Stock
Treasury Stock
Number of
Shares
45,461,257 $
$0.001
Par Value
46
2,186,845
2
Number of
Shares
5,953,818
Cost
$ (35,810)
2,610,279
(12,409)
7,100,565
(35,643)
Balance, December 31, 2012
Issuance of common stock from stock options
and restricted stock awards
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
1,558
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
Purchase of common stock through stock
repurchase program
Shelf registration and other 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
1,939,035
2
1,551,224
(14,989)
4,802
(62)
(712)
5,948
(30)
(256)
Balance, December 31, 2014
49,587,137 $
50
17,215,886
$ (98,851)
$ 280,702
$
(87)
$
Issuance of common stock from stock options
and restricted stock awards
Purchase of common stock through stock
repurchase program
Shelf registration and other fees
Excess tax benefit — stock options
Stock-based compensation expense
Tax withholdings related to net share settlement
of RSU’s
Restricted shares issued in payment of accrued
compensation
Unrealized gain on investments
Unrealized loss on foreign currency translation
Net income
1,223,528
1
1,671,687
(15,098)
116,761
2,801
(20)
3,216
6,624
(1,705)
1,385
1
(236)
Balance, December 31, 2015
50,927,426 $
51
18,887,573
$(113,949)
$ 293,003
$
(322)
$
See accompanying Notes to Consolidated Financial Statements.
62
1,560
(12,409)
(35,643)
157
5,585
(4)
339
(1,837)
157,062
4,804
(14,989)
(62)
(712)
5,948
(30)
(256)
4,081
155,846
2,802
(15,098)
(20)
3,216
6,624
(1,705)
1,385
1
(236)
7,186
160,001
(1,837)
(30,049)
$
4,081
(25,968)
$
7,186
(18,782)
$
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 provision (benefit)
Excess tax benefit—stock options
Other non-cash
Changes in operating assets and liabilities:
Accounts receivable
Prepaid taxes, 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
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 and other fees
Tax withholdings related to net share settlements
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase 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
See accompanying Notes to Consolidated Financial Statements.
63
For the Years Ended December 31,
2014
2013
2015
$ 7,186
$ 4,081
$ (1,837)
5,364
805
236
6,624
1,748
(3,216)
11
(4,180)
(149)
262
(921)
(1,625)
1,803
(967)
654
(2,372)
11,263
(3,699)
(7,891)
6,657
(4,933)
(15,098)
3,216
—
(20)
(1,705)
2,802
(10,805)
(17)
(4,492)
19,275
$ 14,783
5,822
708
291
7,332
(104)
(712)
—
(1,845)
(912)
(594)
56
4,689
(576)
479
(157)
(341)
18,217
(3,847)
(15,101)
14,215
(4,733)
(14,989)
712
—
(62)
—
4,804
(9,535)
(86)
3,863
15,412
$ 19,275
6,046
564
466
5,585
1,554
(506)
—
1,496
(524)
(314)
(239)
(5,004)
412
(17)
1,112
(519)
8,275
(4,477)
(16,433)
25,555
4,645
(47,912)
506
(140)
—
—
1,560
(45,986)
69
(32,997)
48,409
$ 15,412
$ —
$ 5,369
$
$
—
118
$ —
$ 2,834
Table of Contents
TechTarget, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(In thousands, except share and per share data, where otherwise noted or instances where expressed
in millions)
1. Organization and Operations
TechTarget, Inc. and its subsidiaries (the “Company”) is a leading provider of specialized online content that helps buyers of corporate information
technology (“IT”) products and services, and a leading provider of marketing services for the sellers of those solutions. The Company’s offerings enable IT vendors
to identify, reach and influence corporate IT decision makers who are actively researching specific IT purchases through customized marketing programs that
include data analytics-driven intelligence solutions, demand generation and brand advertising. 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, Bitpipe, Inc., TechTarget
Securities Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited (“TTGT HK”), TechTarget (Beijing) Information Technology Consulting Co. Ltd.
(“TTGT Consulting”), TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS (“LeMagIT”) and TechTarget Germany GmbH.
Bitpipe, Inc. features websites that provide in-depth vendor generated content targeted to corporate IT professionals. TSC is a Massachusetts corporation.
TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TTGT HK is a subsidiary incorporated in Hong Kong in order to facilitate
the Company’s activities in the Asia-Pacific region. Additionally, through its wholly-owned subsidiaries, TTGT HK and TTGT Consulting, the Company
effectively controls a variable interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which was incorporated under the laws of the
People’s Republic of China (“PRC”). TechTarget (Australia) Pty Ltd. and TechTarget (Singapore) Pte Ltd. are the entities through which the Company does
business in Australia and Singapore, respectively; LeMagIT and TechTarget Germany GmbH, both wholly-owned subsidiaries of TechTarget Limited, are entities
through which the Company does business in France and Germany, respectively. Knowledgestorm, Inc. was merged into TechTarget, Inc. in 2015.
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
64
Table of Contents
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 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
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications are not material and had no
effect on the reported results of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (“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 revenues, 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 revenues from the sale of targeted advertising campaigns, which are delivered via its network of websites,
data analytics solutions, and events. In all cases, 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.
65
Table of Contents
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
IT Deal Alert ™. This suite of products and services includes IT Deal Alert: Qualified Sales Opportunities™, which profiles specific in-progress purchase
projects, IT Deal Alert: Priority Engine™, which is a subscription service powered by the Company’s Activity Intelligence™ platform that integrates into
salesforce.com and delivers information to allow marketers and sales personnel to identify those accounts who are actively researching new technology purchases,
IT Deal Alert: Deal Data™, which is a customized solution aimed at sales intelligence and data scientist functions that makes the Company’s Activity Intelligence
data directly consumable by the customer’s internal applications, and IT Deal Alert: TechTarget Research™, which is a newly launched subscription product that
sources proprietary information about purchase transactions from IT professionals who are making and have recently completed these purchases. Qualified Sales
Opportunities revenue is recognized when the Qualified Sales Opportunity is delivered to the Company’s customer, Priority Engine revenue is recognized ratably
over the duration of the service, Deal Data revenue is recognized upon delivery of the data to the Company’s customer, and Research revenue is recognized when
the product is delivered.
Core Online. The Company’s core online offerings enable its customers to reach and influence prospective buyers through content marketing programs
designed to generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.
Demand Solutions . As part of its demand solutions (formerly referred to as lead generation) campaign offerings, the Company may guarantee a minimum
number of qualified leads to be delivered over the course of the campaign. The Company determines the content necessary to achieve performance guarantees.
Scheduled end dates of 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 extended campaigns. These estimates are based on the Company’s experience in managing and
fulfilling these offerings. The customer generally has cancellation privileges which normally require advance notice by the customer and require proportional
payment by the customer for the portion of the campaign 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 during the period in which leads are delivered to its customers and recognizes revenue on duration-based campaigns ratably over the
duration of the campaign, which is usually less than six months.
Brand Solutions . Brand solutions (formerly referred to as branding) consist mostly of banner revenue, which is recognized in the period in which the banner
impressions, engagements or clicks occur and microsite revenue, which is recognized over the period during which the microsites are live.
Custom Content . Custom content revenue is recognized when the creation is completed and delivered to the customer.
Other . Other includes list rental revenue, which is recognized in the period in which the Company delivers the customer’s content to a list of the Company’s
registered members, and revenue from third party revenue sharing arrangements, which is primarily recognized on a net basis in the period in which the services are
performed.
66
Table of Contents
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-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. 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.
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,
2015, 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, 2015 or 2014.
67
Table of Contents
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, 2015, 2014 and 2013.
Year ended December 31, 2013
Year ended December 31, 2014
Year ended December 31, 2015
Balance at
Beginning
of Year
911
913
1,014
$
$
$
Provision
564
$
708
$
805
$
Acquired in
Business
Combinations
—
—
—
Write-offs,
Net of
Recoveries
(562)
$
(607)
$
(104)
$
Balance at
End of
Year
$
$
$
913
1,014
1,715
Property and Equipment and Other Capitalized Assets
Property and equipment and other capitalized assets are 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
Property and equipment and other capitalized assets consist of the following:
Estimated Useful Life
5 years
3 years
3–5 years
Shorter of useful life or remaining duration of lease
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,
2015
$
794
4,051
1,510
20,934
27,289
(18,367)
$ 8,922
2014
$
831
4,567
1,508
18,034
24,940
(15,725)
$ 9,215
Depreciation expense was $4.0 million, $4.1 million and $3.8 million for the years ended December 31, 2015, 2014 and 2013, 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 $1.3 million,
$0.1 million and $2.7 million of fully depreciated assets that were no longer in service during 2015, 2014 and 2013, respectively.
Depreciation expense is classified as a component of operating expense in the Company’s results of operations.
68
Table of Contents
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 $2.9 million, $3.0 million and $3.6 million for the years ended December 31, 2015, 2014 and 2013, 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, 2015 or 2014. No single customer accounted for 10% or more of
total revenues in the years ended December 31, 2015, 2014 or 2013.
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 (“ASC 740”).
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 Operations and Comprehensive Income (Loss) using the
straight-line method over the vesting period of the award. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock option
awards.
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 adjustments.
69
Table of Contents
There were no material reclassifications out of accumulated other comprehensive income (loss) in the periods ended December 31, 2015, 2014 or 2013.
Foreign Currency
The functional currency for each of the Company’s subsidiaries is the local currency of the country in which it is incorporated. 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, undelivered 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.
70
Table of Contents
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share is as follows:
Numerator:
Net income (loss)
Denominator:
Basic:
Weighted average shares of common stock and vested, undelivered restricted stock
awards outstanding
Diluted:
Weighted average shares of common stock and vested, undelivered restricted stock
awards outstanding
Effect of potentially dilutive shares
Total weighted average shares of common stock and vested, undelivered restricted stock
awards outstanding and potentially dilutive shares
Calculation of Net Income (Loss) Per Common Share:
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)
2015
For the Years Ended December 31,
2014
2013
$
7,186
$
4,081
$
(1,837)
32,963,185
33,010,162
37,886,492
32,963,185
1,512,620
33,010,162
1,630,349
37,886,492
—
34,475,805
34,640,511
37,886,492
$
7,186
32,963,185
$
0.22
$
7,186
34,475,805
$
0.21
$
4,081
33,010,162
$
0.12
$
4,081
34,640,511
$
0.12
$
(1,837)
37,886,492
$
(0.05)
$
(1,837)
37,886,492
$
(0.05)
(1)
In calculating diluted earnings per share, 1.1 million, 1.0 million and 5.3 million shares related to outstanding stock options and unvested, undelivered
restricted stock awards were excluded for the years ended December 31, 2015, 2014 and 2013, 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, undelivered restricted stock
awards for the year ended December 31, 2013 that would have been dilutive if the Company had net income during that period.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition . ASU 2014-09 is based
on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
(“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective
for annual reporting periods (including interim reporting periods within those periods) beginning
71
Table of Contents
after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted only as of annual reporting periods (including interim reporting
periods within those reporting periods) beginning after December 15, 2016. 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.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (Subtopic 350-40) (“ASU
2015-05”) , which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement
includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software
licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. The
guidance in ASU 2015-05 is required for annual reporting periods (including interim periods within the reporting period) beginning after December 15, 2015,
including interim periods within the reporting period. The Company adopted the provisions of the new standard on January 1, 2016 and does not anticipate that the
adoption will have a material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU
2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the current
guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet. The
guidance in ASU 2015-17 is required for annual reporting periods beginning after December 15, 2016, including interim periods within the reporting period. The
Company early adopted the provisions of the new standard on January 1, 2016. Implementing the new pronouncement will result in the Company reclassifying
approximately $2.3 million in current deferred tax assets to non-current in the first quarter of 2016.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10)—Recognition and Measurement of Financial Assets
and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. ASU 2016-01 is effective for reporting periods beginning after December 15, 2017. Early adoption is not permitted. The Company is currently
evaluating the impact that this guidance will have on its consolidated financial statements and disclosure.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that
requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosure.
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.
72
Table of Contents
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 – current(3)
Total liabilities
Assets:
Money market funds(1)
Short-term investments(2)
Long-term investments(2)
Total assets
Liabilities:
Contingent consideration – non-current(3)
Total liabilities
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
December 31, 2015
$
$
$
$
122
10,646
9,262
20,030
1,326
1,326
$
$
$
$
122
—
—
122
—
—
$
$
$
$
—
10,646
9,262
19,908
—
—
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
December 31, 2014
$
$
$
$
1,071
5,480
13,428
19,979
1,114
1,114
$
$
$
$
1,071
—
—
1,071
—
—
$
$
$
$
—
5,480
13,428
18,908
—
—
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
—
—
—
—
1,326
1,326
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
—
—
—
—
1,114
1,114
(1)
(2)
(3)
Included in cash and cash equivalents on the accompanying consolidated balance sheets; valued at quoted market prices in active markets.
Short-term and long-term investments consist of municipal bonds, corporate bonds and government agency bonds; their fair value is calculated using an
interest rate yield curve for similar instruments.
The Company’s valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with the LeMagIT
acquisition are described in Note 4. As the final payment of $1.3 million, net of a $0.4 million remaining contingency, was paid in January 2016, the
remaining value of the contingent consideration was reclassified from non-current to current during 2015. Remeasurement of the contingent consideration to
fair value is included in General and Administrative expense in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).
73
Table of Contents
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, 2013, 2014
and 2015:
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
Currency translation impact on contingent liabilities
Amortization of discount on contingent liabilities
Remeasurement of contingent liabilities
Balance as of December 31, 2015
Fair Value
1,180
$
28
288
1,496
(204)
(545)
47
320
1,114
(127)
305
34
1,326
$
$
$
4. Acquisition
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, and
the remainder was paid in two equal installments in 2013 and 2014. The earnout is subject to certain revenue growth targets and the payment will be adjusted based
on actual results. In valuing the contingent consideration, it was determined that fair value adjustments were necessary to appropriately reflect the inherent risk and
related time value of money associated with these potential payments. Accordingly a discount rate of 28% was used. The calculation of these fair values required
the use of significant inputs that are not observable in the market and thus represent a Level 3 fair value measurement as defined in ASC 820, Fair Value
Measurements and Disclosures . The significant inputs in the Level 3 measurements not supported by market activity include estimated future revenues as well as
the rates used to discount them. 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%. Because the earnout payment of $1.3 million,
net of a $0.4 million remaining contingency, was paid in January 2016, it is included in current liabilities at net present value in the Company’s Consolidated
Balance Sheet as of December 31, 2015 (See Note 3).
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
74
As of December 31,
2015
$14,661
122
$14,783
2014
$18,204
1,071
$19,275
Table of Contents
The Company’s short-term and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the
related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. The cumulative
unrealized (loss) gain, net of taxes, was $(19), $(20) and $10 as of December 31, 2015, 2014 and 2013, 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 2015, 2014 or 2013.
Short-term and long-term investments consisted of the following:
Short-term and long-term investments:
Government agency bonds
Municipal bonds
Corporate bonds
Total short-term and long-term investments
Short-term and long-term investments:
Government agency bonds
Municipal bonds
Total short-term and long-term investments
December 31, 2015
Gross
Unrealized
Gains
$
$
—
—
—
—
Gross
Unrealized
Losses
$
$
(15)
(14)
(1)
(30)
December 31, 2014
Gross
Unrealized
Gains
$
$
—
4
4
Gross
Unrealized
Losses
$
$
(14)
(21)
(35)
Estimated
Fair Value
7,600
$
11,804
504
$ 19,908
Estimated
Fair Value
6,618
$
12,290
$ 18,908
Cost
$ 7,615
11,818
505
$19,938
Cost
$ 6,632
12,307
$18,939
The Company had 16 debt securities in an unrealized loss position at December 31, 2015. All of these securities have been in such a position for no more
than six months. The unrealized loss on those securities was approximately $30 and the fair value was $18.9 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, 2015.
Municipal, government agency, and corporate bonds have contractual maturity dates that range from July 2016 to April 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, 2015 and 2014 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
75
As of December 31,
2015
$93,979
—
(278)
$93,701
2014
$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
Estimated
Useful Lives
(Years)
5-9
10
5-8
5
3
Estimated
Useful Lives
(Years)
5-9
10
5-8
3-5
3
Gross
Carrying
Amount
$ 6,996
1,222
1,819
1,232
76
$ 11,345
Gross
Carrying
Amount
$ 7,079
1,361
1,859
1,270
85
$ 11,654
As of December 31, 2015
Accumulated
Amortization
(6,379)
$
(603)
(1,685)
(1,154)
(76)
(9,897)
$
As of December 31, 2014
Accumulated
Amortization
(5,480)
$
(499)
(1,598)
(1,024)
(58)
(8,659)
$
Net
$ 617
619
134
78
—
$1,448
Net
$1,599
862
261
246
27
$2,995
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 2.41 years.
Amortization expense was $1.4 million, $1.8 million and $2.2 million for the years ended December 31, 2015, 2014 and 2013, 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 did not write off any fully amortized intangible assets in 2015. The Company wrote off $5.9 million of fully
amortized intangible assets in 2014.
The Company expects amortization expense of intangible assets to be as follows:
Years Ending December 31:
2016
2017
2018
2019
2020
Thereafter
76
Amortization
Expense
824
163
101
85
72
203
1,448
$
Table of Contents
8. Bank Demand Loan Payable
The Company’s $5.0 million revolving credit facility was amended and restated in its entirety in June 2015. The new credit facility (the “Amended and
Restated Credit Agreement”) is a discretionary $5.0 million demand revolving line. At the Company’s option, the Amended and Restated 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, 2015, the applicable LIBOR margin was 1.25%. Unless earlier payment is required by an event of default, all
principal and unpaid interest will be due and payable on the interest payment date; however, there is an automatic rollover provision for all loans for which LIBOR
is elected by the Company. Borrowings, if any, under the Amended and Restated Credit agreement would be collateralized by a security interest in substantially all
assets of the Company. There are no financial covenant requirements and no unused line fees under the Amended and Restated Credit Agreement. At December 31,
2015, there were no amounts outstanding under the Amended and Restated Credit Agreement.
As of December 31, 2014, prior to the Amended and Restated Credit Agreement, the Company had a $5.0 million term revolving credit facility (the “Credit
Agreement”). Covenants governing the Credit Agreement included the maintenance of certain financial ratios. At December 31, 2014, the Company was in
compliance with all covenants under the Credit Agreement. The Company was 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. At December 31, 2014, there were no
amounts outstanding 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. In
August 2009, the Company entered into an agreement to lease approximately 87,875 square feet of office space in Newton, Massachusetts (the “Newton Lease”).
The Newton Lease commenced in February 2010 and has a term of ten years. In November 2010, the Newton Lease was amended to include an additional 8,400
square feet of office space (the “Amended Newton Lease”). The Amended Newton Lease commenced in March 2011 and runs concurrently with the term of the
Newton Lease. The Company is receiving certain rent concessions over the life of the Newton Lease as well as the Amended Newton Lease. In July 2015, the
Newton Lease was again amended to include an additional 14,203 square feet of office space (the “Second Amended Newton Lease”). The Second Amended
Newton Lease commenced in the first quarter of 2016 and runs concurrently with the term of the Newton Lease. There are no rent concessions related to the
Second Amended Newton Lease, and all rent concessions which were part of the Newton Lease and Amended Newton Lease remain unchanged.
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 $3.9 million, $4.1 million and $4.0 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
77
Table of Contents
Future minimum lease payments under the Company’s noncancelable operating leases at December 31, 2015 are as follows:
Years Ending December 31:
2016
2017
2018
2019
2020
Thereafter
Net Worth Tax Contingency
Minimum
Lease
Payments
$ 4,803
4,346
4,478
4,493
684
—
$ 18,804
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 had been classified by the MA DOR as a Massachusetts security corporation for the 2006 and 2007 tax years. 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
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 composed 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. As of the date of the ruling, the Company had recorded a liability of approximately $257 to account for the tax differential in all
open years, including penalties and interest. On August 17, 2011, the Company filed Applications for Abatement with the MA DOR. In January 2012, the
Company filed Petitions for Formal Procedure with the Massachusetts Appellate Tax Board (the “ATB”). A trial took place in April 2014, and in May 2015 the
ATB ruled in favor of the MA DOR. During the second quarter of 2015, the Company accepted an amnesty offer from the MA DOR and paid all amounts due.
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, 2015 and
2014, 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 provided for the issuance of shares of common stock incentives. The
1999 Plan provided for the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock grants. These incentives were offered to
the Company’s employees, officers, directors, consultants, and advisors. Each option is exercisable at such times and subject to such terms as determined by the
Company’s Board of Directors (the “Board”); grants generally vest over a four year period, and expire no later than ten years after the grant date.
In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”), which was approved by the stockholders of the Company
and became effective upon the consummation of the Company’s
78
Table of Contents
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,
7,475,399 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, 2015,
a total of 1,839,744 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
2015
47%
6 years
1.67%
— %
3.72
$
Years Ended December 31,
2014
78%
6 years
1.62%
— %
7.22
$
2013
67%
5 years
0.58%
— %
$
3.89
The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period
equal to the expected life of the option. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a
zero coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying
cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture
rate in determining the expense recorded in each period.
79
Table of Contents
A summary of the stock option activity under the Company’s stock option plans for the year ended December 31, 2015 is presented below:
Options outstanding at December 31, 2014
Granted
Exercised
Forfeited
Canceled
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
Options vested or expected to vest at
December 31, 2015
Options
Outstanding
3,347,657
15,000
(414,490)
—
(25,431)
2,922,736
2,922,736
2,922,736
Weighted-Average
Exercise
Price Per Share
7.86
8.49
6.76
—
13.95
7.97
7.97
7.97
$
$
$
$
Weighted-Average
Remaining
Contractual Term
in Years
Aggregate
Intrinsic
Value
1.58
1.58
1.58
$
$
$
2,637
2,637
2,637
During the years ended December 31, 2015, 2014 and 2013, 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 $1.7 million, $4.2 million and $1.4 million, respectively, and the total
amount of cash received by the Company from exercise of these options was $2.8 million, $4.8 million and $1.6 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, 2015 is presented below:
Nonvested outstanding at December 31, 2014
Granted
Vested
Forfeited
Nonvested outstanding at December 31, 2015
Shares
2,279,167
846,668
(948,299)
(189,642)
1,987,894
Weighted-Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
$
$
5.83
9.16
6.38
7.77
6.93
$ 15,963
The total grant-date fair value of restricted stock awards that vested during the years ended December 31, 2015, 2014 and 2013 was $7.2 million, $5.7
million and $5.0 million, respectively.
As of December 31, 2015, there was $10.7 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 1.6 years.
80
Table of Contents
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
related to restricted stock awards that had been approved as of that date but had not been delivered. This non-cash compensation expense was recorded as part of
stock-based compensation expense in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss). Because the shares were delivered
in 2015, there was no accrual as of December 31, 2015.
11. Stockholders’ Equity
Reserved Common Stock
As of December 31, 2015, the Company has reserved 7,246,625 shares of common stock for use in settling outstanding options and unvested restricted stock
awards that have not been issued as well as future awards available for grant under the 2007 Plan.
Common Stock Repurchase Programs
In August 2014, the Company announced that the Board had authorized a $20 million stock repurchase program (the “Repurchase Program”), whereby the
Company was authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions. In May 2015,
the Board amended the program to authorize an additional $10 million to be used for such purchases. The Repurchase Program expired on December 31, 2015.
During the year ended December 31, 2015, the Company repurchased 1,671,687 shares of common stock for an aggregate purchase price of $15 million
pursuant to the Repurchase Program. During the year ended December 31, 2014, the Company repurchased 1,551,224 shares of common stock for an aggregate
purchase price of $15 million pursuant to the Repurchase Program.
Repurchased shares are recorded under the cost method and are reflected as treasury stock in the Company’s accompanying Consolidated Balance Sheets.
All repurchased shares were funded with cash on hand.
Share Repurchase
In December 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 for an aggregate price of approximately $9.8 million. 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 Repurchase Program discussed above. A member of the Company’s Board 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 Operations and Comprehensive Income (Loss) for the year ended December 31, 2014.
81
Table of Contents
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”).
12. Income Taxes
Income (loss) before provision for (benefit from) income taxes was as follows:
United States
Foreign
Income (loss) before income taxes
Year Ended December 31,
2015
$11,040
881
$11,921
2014
$6,071
1,055
$7,126
2013
$(3,157)
663
$(2,494)
The income tax provision for (benefit from) the years ended December 31, 2015, 2014 and 2013 consisted of the following:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Years Ended December 31,
2015
2014
2013
$2,500
167
320
2,987
796
796
156
1,748
$4,735
$2,574
15
560
3,149
(424)
593
(273)
(104)
$3,045
$(2,373)
34
128
(2,211)
1,700
(157)
11
1,554
$ (657)
82
Table of Contents
The income tax provision (benefit) for the years ended December 31, 2015, 2014 and 2013 differs from the amounts computed by applying the statutory
federal income tax rate to the consolidated income (loss) before income taxes as follows:
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
Losses not benefitted
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
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
Net deferred tax assets
As reported:
Current deferred tax assets
Non-current deferred tax assets
Non-current deferred tax liabilities
Years Ended December 31,
2015
$4,172
2014
$2,477
2013
$(848)
(181)
(6)
(430)
14
408
573
9
—
197
—
(21)
$4,735
(144)
—
(479)
104
492
337
56
188
—
15
(1)
$3,045
(65)
(6)
271
116
113
(228)
100
—
(154)
15
29
$(657)
As of December 31,
2015
2014
$
341
—
78
1,557
5,493
862
8,331
(528)
7,803
(1,496)
—
(2,679)
(4,175)
$ 3,628
$ 2,317
$ 1,893
$
582
$ 1,151
46
—
1,681
5,718
1,060
9,656
(1,214)
8,442
(904)
(44)
(2,063)
(3,011)
$ 5,431
$ 2,674
$ 3,230
$
473
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
83
Table of Contents
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 $528 and $1,214 at
December 31, 2015 and 2014, respectively, relates primarily to foreign net operating losses (“NOLs”) that the Company determined were not more likely than not
to be realized based on projections of future taxable income in China and Hong Kong. The valuation allowance (decreased)/increased by ($686), $56 and $100
during the years ended December 31, 2015, 2014 and 2013, respectively. To the extent realization of the deferred tax assets for foreign net operating losses
becomes more likely than not, recognition of these acquired tax benefits would reduce income tax expense. As of December 31, 2015, the Company has a federal
NOL carryforward of approximately $0.2 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, 2015 was approximately $0.2 million. The amount of unrecognized tax benefits that impact the
effective tax rate, if recognized, is approximately $0.2 million. It is not expected that the amount of unrecognized tax benefits will change significantly within the
next twelve months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2015 and 2014 is as follows:
Balance at beginning of year
Reductions due to amnesty and settlement
Payments
Gross increases related to positions taken in prior periods
Balance at end of year
2015
$ 672
(160)
(336)
8
$ 184
2014
$657
—
—
15
$672
2013
$642
—
—
15
$657
In late March 2010, the Company received a letter from the MA DOR requesting documentation demonstrating that TSC, a wholly-owned subsidiary of the
Company, had been classified by the MA DOR as a Massachusetts security corporation for the 2006 and 2007 tax years. Following 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
would be treated as a Massachusetts business corporation for the applicable years. The Company recorded a tax reserve of approximately $0.4 million. The tax
benefits available to a Massachusetts security corporation are composed 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. In
January 2012, the Company filed Petitions under Formal Procedure with the ATB. A trial took place in April 2014, and in May 2015 the ATB ruled in favor of the
MA DOR. As of the date of the ruling, the Company had recorded a current liability of approximately $677 to account for the tax differential in all open years,
which included 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. During the second quarter of 2015, the Company accepted an amnesty offer from the MA DOR and paid
all amounts due.
The Company recognized interest and penalties totaling $8 on its uncertain tax positions in income tax expense in 2015.
84
Table of Contents
The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local and foreign
income tax examinations by tax authorities in its major jurisdictions for years before 2012, except to the extent of net operating loss and tax credit carryforwards
from those years. Major taxing jurisdictions include the U.S., both federal and state.
As of December 31, 2015, the Company had a California NOL carryforward acquired from Bitpipe of approximately $0.2 million, which may be used to
offset future taxable income and expires in 2018. The Company has foreign NOL carryforwards of $1.4 million, which may be used to offset future taxable income
in foreign jurisdictions until they expire, through 2020. The deferred tax assets relating to the NOLs are fully offset by a valuation allowance. The current year
decrease in the valuation allowance relates primarily to the write off of the deferred tax asset for state net operating loss carryforwards and the corresponding
valuation allowance previously recognized. The Company determined the NOLs were not more likely than not to be realized based on projections of future taxable
income in California, China, and Hong Kong.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $3.1 million as of December 31, 2015. The Company has not
provided any additional federal or state income taxes or foreign withholding taxes on the undistributed earnings as such earnings have been indefinitely reinvested
in the business. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings
is not practicably determinable.
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**:
United States
International
Total
Long-lived assets*** by geographic area were as follows:
United States
International
Total
Years Ended December 31,
2014
2015
$ 85,284
26,542
$111,826
$ 81,921
24,282
$106,203
2013
$65,386
23,110
$88,496
Years Ended December 31,
2015
99,091
$
4,980
104,071
$
2014
100,042
$
6,147
106,189
$
*
**
***
based on current customer billing address; does not consider the geo-targeted (target audience) location of the campaign
no single country outside of the U.S. accounted for 10% or more of revenue during any of these periods
comprised of property, plant and equipment, net; goodwill; and intangible assets, net
85
Table of Contents
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 $0.9 million, $0.7 million and $0.7 million to the Plan for the years ended December 31, 2015, 2014 and 2013, 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
Net income
Net income per common share:
Basic
Diluted
16. Subsequent Events
For the Three Months Ended
2015
2014
Sep. 30
Jun. 30
Dec. 31 Mar. 31
Dec. 31
Mar. 31
$23,658 $29,757 $29,007 $29,404 $22,977 $26,148 $26,432 $30,646
7,528
23,118
19,534
3,584
938 $ 1,705
6,984
16,674
16,518
156
347 $ 2,829 $ 2,041 $ 1,969 $
6,637
16,340
16,143
197
135 $ 1,303 $
6,754
19,678
17,921
1,757
7,512
21,495
18,042
3,453
7,811
21,593
17,252
4,341
7,128
19,020
17,099
1,921
7,596
22,161
17,941
4,220
Jun. 30
Sep. 30
$
$
$
0.01 $
0.01 $
0.09 $
0.08 $
0.06 $
0.06 $
0.06 $
0.06 $
0.00 $
0.00 $
0.04 $
0.04 $
0.03 $
0.03 $
0.05
0.05
On February 10, 2016, the Company announced that the Board had authorized a $20 million stock repurchase program, whereby the Company is authorized
to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be
determined by the Board.
86
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 Annual Report on Form 10-K for the period ended December 31, 2015, 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, 2015. 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 2015 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 consolidated 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 consolidated 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 consolidated 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.
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.
87
Table of Contents
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, 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, 2015, which is included herein.
88
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, 2015, 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, 2015, 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, 2015 and 2014, 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, 2015 and our report dated March 11, 2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 11, 2016
89
Table of Contents
Item 9B.
Other Information
None.
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
Incorporated by reference from the information in the Company’s proxy statement for the 2016 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 2016 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 2016 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 2016 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 2016 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 15.
Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report:
PART IV
(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, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
90
Table of Contents
(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.
(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.
91
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 11, 2016
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
92
March 11, 2016
March 11, 2016
March 11, 2016
March 11, 2016
March 11, 2016
March 11, 2016
March 11, 2016
Table of Contents
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
Articles of Incorporation and By-Laws
Description
Form or
Schedule
Exhibit
No.
Incorporated by Reference to
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
10.1
10.2
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
Material Contracts
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
Form of Indemnification Agreement between the Registrant and its Directors and
Officers
2007 Stock Option and Incentive Plan
S-1
10.1
2/07/2007
333-140503
S-1/A
10.2
5/15/2007
333-140503
S-1/A
10.3
4/20/2007
333-140503
Form of Incentive Stock Option Agreement under the 2007 Stock Option and
Incentive Plan
Form of Non-Qualified Stock Option Agreement under the 2007 Stock Option and
Incentive Plan
S-1/A
10.4
4/20/2007
333-140503
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
Form of Restricted Stock Unit Agreement under the 2007 Stock Option and
Incentive Plan
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Kevin Beam
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Don Hawk
Restricted Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Greg Strakosch
S-1/A
10.6
4/20/2007
333-140503
10-K
10.8
3/31/2008
001-33472
10-K
10.9
3/31/2008
001-33472
10-K
10.10
3/31/2008
001-33472
10-K
10.13
3/31/2008
001-33472
S-1
10.8
2/07/2007
333-140503
10.12#
1999 Stock Option Plan
93
Table of Contents
10.13#
10.14#
10.15#
10.16#
10.17#
10.18#
10.19#
10.20
10.21
10.22#
10.23#
10.24#
10.25#
10.26#
10.27
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)
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
Amended and Restated Employment Agreement, dated January 17, 2008, by and
between the Registrant and Greg Strakosch
Amended and Restated Employment Agreement, dated January 17, 2008, by and
between the Registrant and Don Hawk
Amended and Restated Employment Agreement, dated January 17, 2008, by and
between the Registrant and Kevin Beam
Lease Agreement by and between MA-Riverside Project L.L.C., as landlord and
TechTarget, Inc., as tenant
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
Amended and Restated Restricted Stock Unit Agreement, dated August 10, 2009,
by and between the Registrant and Michael Cotoia
Employment Agreement dated as of January 1, 2012 between the Registrant and
Michael Cotoia
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)
Employment Agreement between the Registrant and Janice Kelliher (dated May 4,
2012)
Purchase Agreement between the Company and TCV V, LP and TCV Member
Fund, LP, dated December 9, 2014
94
10-K
10.25
3/31/2008
001-33472
10-K
10.26
3/31/2008
001-33472
10-K
10.28
3/31/2008
001-33472
8-K
10.1
8/7/2009
001-33472
8-K
10.1
11/22/2010
001-33472
10-K
10.33
3/16/2011
001-33472
8-K
10.1
1/10/2012
001-33472
10-K
10.36
3/15/2012
001-33472
10-K
10.37
3/15/2012
001-33472
8-K
10.1
5/8/2012
001-33472
8-K
10.1
12/9/14
001-33472
Table of Contents
10.28
10.29
10.30
Amended and Restated Credit Facility Agreement between the Registrant and
Citizens Bank, National Association, dated June 23, 2015
Revolving Promissory Note between the Registrant and Citizens Bank, National
Association, dated June 23, 2015
Second Amendment to Lease Agreement by and between Hines Global REIT
Riverside Center, LLC, as landlord and successor in interest to MA-Riverside
Project, LLC and TechTarget, Inc., as tenant dated July 23, 2015
10-Q
10.1
8/7/2015
001-33472
10-Q
10.2
8/7/2015
001-33472
10-Q
10.1
11/9/2015
001-33472
10.31#*
2016 Executive Incentive Bonus Plan
*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)
*
#
(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.
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, 2015 and December 31, 2014, (ii) Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31,
2015, December 31, 2014 and December 31, 2013, (iii) Consolidated Statements of Stockholders’ Equity for the Years ended December 31,
2015, December 31, 2014 and December 31, 2013, (iv) Consolidated Statements of Cash Flows for the Years ended December 31, 2015, December 31, 2014
and December 31, 2013, and (v) Notes to Consolidated Financial Statements.
95
TECH TARGET, INC.
2016 EXECUTIVE INCENTIVE BONUS PLAN
Exhibit 10.31
1. Purpose
This 2016 Executive Incentive Bonus Plan (the “Plan”) is intended to provide an incentive for superior work and to motivate eligible executives of
TechTarget, Inc. (the “Company”) toward even higher achievement and business results, to tie their goals and interests to those of the Company and its
stockholders and to enable the Company to attract and retain highly qualified executives. The Plan is for the benefit of Covered Executives (as defined below).
2. Covered Executives
From time to time, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) may select certain key
executives (the “Covered Executives”) to be eligible to receive bonuses hereunder.
3. Administration
The Compensation Committee shall have the sole discretion and authority to administer and interpret the Plan. The specific goals and targets under of the
Plan for each performance period shall be determined by the Compensation Committee and, once approved, filed with the minutes of the Committee.
4. Bonus Determinations
(a) A Covered Executive may receive a bonus payment under the Plan based upon the attainment of performance targets which are established by the
Compensation Committee and relate to financial and operational metrics with respect to the Company or any of its subsidiaries (the “Performance Goals”),
including the following: earnings per share, revenues, EBITDA, Adjusted EBITDA (defined as EBITDA further adjusted for stock-based compensation expense) or
such other metrics as the Committee may determine. For 2016, payment of a bonus pursuant to the Plan will be based equally on attainment of a Revenue and
Adjusted EBITDA target, respectively.
(b) Except as otherwise set forth in this Section 4(b): (i) any bonuses paid to Covered Executives under the Plan shall be based upon objectively determinable
bonus formulas that tie such bonuses to one or more performance targets relating to the Performance Goals, (ii) bonus formulas for Covered Executives shall be
adopted in each performance period by the Compensation Committee and communicated to each Covered Executive at the beginning of each bonus period and
(iii) no bonuses shall be paid to Covered Executives unless and until the Compensation Committee makes a determination with respect to the attainment of the
performance objectives. Notwithstanding the foregoing, the Company may adjust bonuses payable under the Plan based on achievement of individual performance
goals or pay bonuses (including, without limitation, discretionary bonuses) to Covered Executives under the Plan based upon such other terms and conditions as the
Compensation Committee may in its discretion determine.
(c) Each Covered Executive shall have a targeted bonus opportunity for each performance period. The maximum bonus payable to a Covered Executive
under the Plan shall be established by the Committee for the applicable performance period.
(d) The payment of a bonus to a Covered Executive with respect to a performance period shall be conditioned upon the Covered Executive’s employment by
the Company on the last day of the performance period; provided , however, that the Compensation Committee may make exceptions to this requirement, in its sole
discretion, including, without limitation, in the case of a Covered Executive’s termination of employment, retirement, death or disability and as required under the
terms of any applicable agreement with a Covered Executive.
(e) In order for the Covered Executives to earn a bonus hereunder, the minimum threshold of 90% of the Adjusted EBITDA and/or Revenue bonus target for
the subject quarter must be achieved. If the applicable 90% threshold is achieved, the Covered Executives will earn 50% of the targeted bonus amount at 90% of
the threshold with respect to each metric. The Covered Executives will earn an additional 5% of that metric’s allocation for their targeted bonus amount for each
additional 1% of the Adjusted EBITDA and Revenue bonus target achieved over 90% until 100% of the Adjusted EBITDA and Revenue bonus target is achieved.
In the event that Adjusted EBITDA for the full fiscal year 2016 is greater than 100% of the aggregate amount of the Covered Executive’s target bonus amount, then
that portion of the bonus payable in excess of the targeted bonus amount will be payable in common stock of the Company.
5. Timing of Payment
The Performance Goals will be measured at the end of each fiscal year after the Company’s financial reports have been published. If the Performance Goals
are met, payments will be made within 60 days thereafter, but not later than March 15.
Quarterly payments will be made to the Covered Executives based on the portion of the annual Performance Goals allocated to each quarter under the Plan.
Such quarterly payments are recoverable by the Company for subsequent quarterly performance (the “claw-back”), and the Covered Executives will receive the
payment (or a portion thereof) applicable to a prior quarter for which the applicable metrics were not achieved in the event that the aggregate amount of the metrics,
on a cumulative basis, were achieved over multiple quarters. At the end of 2016, if the aggregate amount of quarterly payments resulted in an overpayment (that
would not have been made if the payments had been made on a one-time basis at the end of 2016), the Covered Executives will be required to repay the Company
in the amount of the overpayment. Such repayment will be made over a six-month period in the form of offsets to other compensation payments owed to the
Covered Executive; provided, that in the event that the employment of a Covered Executive terminates for any reason, then the full amount of any overpayment
amount then due and owing to the Company would become immediately due and payable.
No quarterly payment may exceed twenty-five percent of the Covered Executive’s target bonus amount and any payments in excess of such target bonus
amount will only be paid in the event that the annual Performance Goals are exceeded.
6. Amendment and Termination
The Company reserves the right to amend or terminate the Plan at any time in its sole discretion.
Subsidiary Legal Name
Bitpipe, Inc.
TechTarget Securities Corporation
TechTarget Limited
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
NA
100%
100%
100%
100%
State/Country
Incorporated
DE
MA
United Kingdom
Hong Kong
NA
NA
NA
NA
NA
100%
100%
100%
100%
100%
China
Australia
Singapore
France
Germany
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 S-3 (No.333-181187 and 333-200080) and Form S-8 (No. 333-145785
and 333-202051) of TechTarget, Inc. of our reports dated March 11, 2016, relating to the consolidated financial statements and the effectiveness of TechTarget,
Inc.’s internal control over financial reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Boston, Massachusetts
March 11, 2016
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 11, 2016
/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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 11, 2016
/s/ JANICE KELLIHER
Janice Kelliher
Chief Financial Officer and Treasurer
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, 2015 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 11, 2016
Date: March 11, 2016
By: /s/ GREG STRAKOSCH
Greg Strakosch
Chief Executive Officer
By: /s/ JANICE KELLIHER
Janice Kelliher
Chief Financial Officer and Treasurer