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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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)
04-3483216
(I.R.S. Employer
Identification No.)
275 Grove Street
Newton, Massachusetts 02466
(Address of principal executive offices) (zip code)
(617) 431-9200
(Registrant’s telephone number, including area code)
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 ☒
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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate by check mark 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. ☒
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
☒
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $124.9 million as of June 30, 2016 (based on a closing price of
$8.10 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 27,422,515 shares of Common Stock, $0.001 par value per share, outstanding as of February 28, 2017.
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 2017 annual meeting of
stockholders, 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, 2016.
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Exhibit Index
2
3
19
32
33
33
33
34
37
40
62
64
93
93
96
96
96
96
96
96
96
97
98
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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. Through continued innovation around our
specialized online content for buyers of enterprise information technology (“IT”), we have become a global leader in purchase intent-driven marketing and sales
services that deliver business impact for enterprise technology vendors. Our offerings enable technology vendors to better identify, reach and influence corporate IT
decision makers actively researching specific IT purchases. We improve vendors’ ability to impact these audiences for business growth using advanced targeting,
analytics and data services complemented with customized marketing programs that integrate demand generation and brand marketing and advertising techniques.
IT professionals have become increasingly specialized, and because each of the websites within our network of over 140 websites focuses on a specific IT
sector such as storage, security or networking, IT professionals rely on us for key decision support information tailored to their specific areas of responsibility.
We enable IT professionals to navigate the complex and rapidly-changing IT landscape where purchasing decisions can have significant financial and
operational consequences. Our content strategy includes three primary sources which IT professionals use to assist them in their pre-purchase research: independent
content provided by our professionals, vendor-generated content provided by our customers and user-generated, or peer-to-peer, content. In addition to utilizing our
independent editorial content, registered members appreciate the ability to deepen their pre-purchase research by accessing the extensive vendor supplied content
available across our website network. Likewise, these members derive significant additional value from the ability our network provides to seamlessly interact with
and contribute to information exchanges in a given field.
We had approximately 18.0 million and 16.9 million registered members—our “audiences”—as of December 31, 2016 and 2015, respectively. While the
size of our registered user base does not provide direct insight into our customer numbers or our revenues, the value of our services sold to our customers is a direct
result of the breadth and reach of this content footprint. This footprint creates the opportunity for our clients to gain business leverage by targeting our audiences
through customized marketing programs. Likewise, the behavior exhibited by these audiences enables us to provide our customers with data products to improve
their marketing and sales efforts. The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly
segmented and aligned with the IT vendors’ specific products. With it, we have developed a broad customer base, and now deliver marketing and sales services
programs to approximately 1,300 customers annually.
Please refer to the section below titled “Our Strategy” regarding expanding longer term and 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 IT industry trends, and foreign currency markets. Because most of our customers are IT
vendors, the success of our business is intrinsically linked to the
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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 adversely impacted, which impacts our revenues. Conversely, when the U.S.
dollar is weak against foreign currencies, revenues attributable to our largest customers can be positively impacted. 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,
while still impacted by general IT industry trends, tend to be less impacted by foreign currency market 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, companies are increasingly using data to help them determine which prospective accounts 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”) in marketing and sales. Before the advent of Internet-based marketing, there were limited tools for
accurately measuring the results of such activities in a timely fashion. The Internet has enabled IT vendors to track individual users and their responses
to marketing. With the appropriate technology, vendors now have the ability to assess and benchmark the efficacy of their online programs cost-
effectively and in real-time. We believe our offerings will benefit as our customers look to continue to leverage the insights gained from this
measurement, and that the data and related services we are providing will assist them as they look to optimize their marketing programs going forward.
Corporate IT Purchasing
Over the past two decades, corporate IT purchases have grown in size and complexity. The corporate IT market comprises multiple large sectors such as
storage, security and networking. Each of these sectors can be
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further divided into sub-sectors addressing more granular areas of specialization within an enterprise’s IT environment. For example, within the multi-billion dollar
storage sector, there are numerous sub-sectors such as storage area networks, storage management software and backup software. Furthermore, the products—and
therefore the vendors—in each sub-sector may represent entirely independent markets. For example, the market around backup software for use in Windows ®
environments can be completely distinct from that addressing 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 (“CIO”).
For these reasons and more, 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 customers’ needs for significant information support, requires substantial investment on the part
of IT vendors. These realities drive the significant marketing expenditures observable in the corporate IT market. In addition, given the continued acceleration of
technological change, at any given time, there are often multiple solution possibilities to any particular IT need. With each new product or product enhancement, IT
vendors implement new marketing outreach, and as a result IT professionals are required to continuously engage in research to stay abreast of the latest
developments that could benefit their companies.
The Opportunity
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. Today, corporate IT professionals are demanding specialized online content tailored to the specialized sub-sectors of IT solutions
that they must understand. As technology, vendors and IT professionals have all become much more specialized, the Internet has become a preferred purchase
research medium, which has dramatically increased research activity, accelerated information consumption and improved professional decision-making.
IT vendors seek high-ROI marketing opportunities that can provide them access to the specific sectors of IT buyers aligned with the solutions they sell. To
be more efficient and effective, they need to distinguish these prospective buyers from accounts or individuals who are not yet ready to engage in the buying
process. Thus, they look for assistance in identifying the specific accounts and individuals who are actively researching upcoming purchases. To more quickly and
successfully position their respective solutions against alternatives being considered, they also seek assistance from marketing service providers to help influence
these audiences by utilizing advanced demand-generating content marketing and targeted branding.
Our Solution
IT professionals rely on our content platform for decision support information tailored to their specific purchasing needs. Our specialized content strategy
and comprehensive services enable IT vendors to better identify, understand, reach and influence corporate IT professionals who are actively researching purchases
in specific IT sectors. Our solution benefits from the following competitive advantages:
•
Large and Growing Community of Registered Members. We had approximately 18.0 million registered members as of December 31, 2016. The
targeted nature of our user base enables IT vendors to reach a
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•
•
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 2016, we delivered marketing services programs for approximately
1,300 IT vendor customers.
Substantial Experience in Online Content Creation and Marketing. We have over 18 years of experience in developing our online information content,
with a focus on providing targeted information to IT professionals and a highly refined audience to technology vendors. Our experience enables us to
develop relevant new online properties rapidly and to acquire and efficiently integrate select properties to 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™ analytical product
platform, we collect information on millions of interactions that our members and visitors (and the companies, or accounts, that they are associated
with) have with the content on our websites and that we send to them via email. 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 better prospects to them more
efficiently. This analytics platform not only guides everything we do on our own properties, it is also available to our customers in a variety of forms
to aid them in directly optimizing their efforts.
•
Significant Brand Recognition among IT Vendors and IT Professionals. Our brand is well-recognized by IT vendors who value our integrated
marketing capabilities and comprehensive high-ROI services. 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. When users perform targeted searches on search engines such as Google TM , TechTarget content routinely
appears on the first page returned. This is due in part to our long history of using an exceptionally targeted approach toward online publishing and our
network of websites that has produced a large repository of highly valued content. Furthermore, because of our success in attracting inbound traffic
from search engines, this, in turn, serves to continuously increase our registered membership as professionals find what they are looking for and
therefore rely on us for what they need.
Our solutions increase efficiency and effectiveness for both IT professionals and IT vendors. We facilitate IT professionals’ ability to find specific
information related to their purchase decisions, and we enable 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 when 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 assimilating quality information. To support IT professionals’ information consumption
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preferences, we provide this specialized, targeted content through a variety of media types matching the critical stages within the purchase decision
process.
Benefits to IT Vendors
•
Provides Unique Data about In-Market Prospects. Our Activity Intelligence analytical product platform captures and interprets the content
consumption behaviors of our large base of targeted IT professional users as they research technology needs. This allows us to provide IT vendors with
powerful behavioral insight to help them more effectively identify and pursue 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 who are actively researching purchasing decisions.
Using our database of registered members and information we collect about their product interests, we are able to accurately target those registered
members most likely to be of value to IT vendors, and support vendor-customer’s execution with scalable marketing services programs that help
influence these prospective buyers.
•
Generates Measurable Results. 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 their
companies’ interests as they evolve over time. Through experience, we have identified patterns that are indicative of purchase intent. We leverage this
insight to improve ROI on the programs we execute for our clients by focusing specifically where active demand exists. We provide this intelligence
directly to IT vendors for their own use. This helps them drive continuous improvement in their own marketing and sales workflows and outcomes,
whether focused specifically on prospects we provide them or on those they have otherwise obtained, which our information enriches and makes more
actionable.
•
Maximizes Awareness. 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 aware of and more knowledgeable
about the vendor’s specifications and product and therefore more likely to consider the vendor. Increased consideration of our vendor-customers’
offerings combined with accurate purchase intent insight around those prospects who are actively researching a purchase significantly reduces vendor
prospecting costs and time expended on inactive accounts.
Our Strategy
Our goal is to deliver superior performance by continuously enhancing our position as a global leader in purchase intent-driven marketing and sales services
that deliver business impact for enterprise technology vendors by strengthening our offerings in our three core capability areas – our specialized content that
connects IT professionals with IT vendors in the sectors and sub-sectors that we serve, the purchasing intent insight analytics and data services our content and user
traffic enables, and the marketing services we provide to clients to help meet their business growth objectives. 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 TM suite of offerings, built on our Activity
Intelligence analytic product platform, consists of multiple recently developed products and services that provide IT vendors with data-enabled
optimization solutions. We intend to further develop our
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existing product offerings with new features, and launch additional offerings that extend our capabilities based on our customer’s requirements.
•
Expand Long-term Contractual Relationships with Customers. A number of our newly introduced data-enabled marketing products are being offered
to our customers on a subscription basis, on multiple quarter or annual agreements. We intend to expand the number of subscription contracts with our
customers, which allows us to work more closely with them in achieving their marketing objectives over an extended period and provide us with stable
revenue streams from the continued growth of these products and our successful renewal efforts.
•
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 specific properties or companies with attractive properties. We previously 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, by making strategic acquisitions and investments in overseas entities. During 2016, approximately 32% of our
online revenues were derived from international geo-targeted programs, 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 $1 million and $5 million dollars in annual revenues; and later stage revenue sites, typically generating greater than $5 million 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 specialized websites that serve the needs of IT professionals who are making corporate purchase
decisions. At critical stages of the purchase decision process, these content offerings through different channels meet IT professionals’ needs for expert, peer and IT
vendor information and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high ROI.
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The table below provides a representation of the key market opportunities we address for our vendor customers:
Audience: Market Segment Sites
AppDev
SearchCloudApplications
SearchMicroservices
SearchSoftwareQuality
SearchWinDevelopment
Ajaxian
ebizQ.net
TheServerSide
SearchSOA China
SearchDevelop Japan
BizApps & BI
SearchBusinessAnalytics
SearchCloudApplications
SearchContentManagement
SearchCRM
SearchDataManagement
SearchDomino
SearchExchange
SearchFinancialApplications
SearchManufacturingERP
SearchOracle
SearchSalesforce
SearchSAP
SearchSQLServer
BeyeNetwork
ComputerWeekly Business
Analytics
LeMagIT Applications
LeMagIT Data Management
SearchDataCenter en Español
Business Applications
SearchDatabase China
SearchBI China
SearchEnterpriseSoftware
Germany
SearchApplication Japan
SearchBusiness Japan
SearchCRM Japan
SearchSaaS Japan
CIO
Strategies
SearchCIO
IoT Agenda
ComputerWeekly
SearchCIO China
SearchSMB China
SearchSMB Japan
Cloud
SearchAWS
SearchCloudApplications
SearchCloudComputing
SearchCloudProvider
SearchCloudSecurity
SearchCloudStorage
LeMagIT Cloud Computing
StrategiesCloud.fr
SearchCloudComputing China
Data Center
Search400
SearchConvergedInfrastructure
SearchDataCenter
SearchEnterpriseDesktop
9
SearchEnterpriseLinux
SearchITChannel Systems
SearchWindowsServer
ComputerWeekly DataCentre
LeMagIT Data Center
SearchDataCenter China
SearchSV China
SearchDataCenter.de
SearchDataCenter en Español
Data Center
SearchDataCenter Italy
SearchDataCenter Japan
SearchOperation Japan
SearchITOperations
DR
SearchCompliance
SearchContentManagement
SearchDataBackup
SearchDisasterRecovery
End User
Computing
SearchEnterpriseDesktop
SearchVirtualDesktop
BrianMadden
SearchVirtual China
Health IT
SearchHealthIT
SearchHealthIT Japan
Health IT Exchange
Continued
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Networking
SearchEnterpriseWAN
SearchITChannel Security
SearchMidmarketSecurity
SearchITChannel Networking
SearchSecurity
SearchStorage
SearchVirtualStorage
ComputerWeekly Storage
SearchMobileComputing
ComputerWeekly Security
LeMagIT Storage
SearchNetworking
SearchSDN
SearchTelecom
LeMagIT Security
SearchSecurity China
SearchSecurity Germany
SearchUnifiedCommunications
SearchDataCenter en Español
Security
SearchSecurity Italy
SearchSecurity Japan
Storage
Architecture
SearchCloudStorage
SearchDataCenter en Español
Storage
SearchStorage Germany
SearchStorage China
Virtualization
SearchServerVirtualization
SearchVirtualDesktop
SearchVirtualStorage
SearchVMware
BrianMadden
SearchConvergedInfrastructure
LeMagIT Server Virtualization
SearchDataBackup
SearchITChannel Storage
SearchSMBStorage
SearchSolidStateStorage
LeMagIT Virtual Desktop
SearchVirtualization Japan
ComputerWeekly Networking
LeMagIT Networking
SearchNetworking China
SearchDataCenter en Español
Networking
SearchNetworking Germany
SearchNetwork Japan
SearchUnifiedCom Japan
Security
SearchCloudSecurity
SearchFinancialSecurity
Media Groups
Based upon the logical clustering of our users’ respective job responsibilities and the marketing focus of the products being promoted by our customers, we
currently categorize our content offerings to address the key market opportunities and audience extensions across a portfolio of 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
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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.
•
Data Center and Virtualization Technologies. Data centers house the systems and components, such as servers, storage devices, routers and switches,
utilized in large-scale, mission-critical computing environments. A variety of trends and new technologies have reinvigorated the data center as a
priority among IT professionals. Technologies, such as blade servers, server virtualization, converged infrastructure and cloud computing, have driven
renewed investment in data center-class computing solutions. Server consolidation is a focus, driven by the decline in large-scale computing prices
relative to distributed computing models. These trends have put pressure on existing data center infrastructure and are driving demand for solutions
that address this. For example, the deployment of high-density servers has led to increased heat output and energy consumption in data centers. Power
and cooling have thus become a significant cost in IT budgets, making data center energy efficiency a priority. Our key online properties in this sector
provide targeted information on the IT vendors, technologies and solutions that serve these sub-sectors. Our properties in this sector include
SearchDataCenter.com, covering disaster recovery, power and cooling, mainframe and UNIX ® servers, systems management, and server
consolidation; SearchEnterpriseLinux.com, focused on Linux migration and infrastructures; Search400.com, covering mid-range computing and
SearchCloudComputing.com and SearchAWS.com which cover private, public and hybrid cloud infrastructure. SearchServerVirtualization.com
covers the decision points and alternatives for implementing server virtualization, while SearchVMware.com focuses on managing and building out
virtual environments on the most widely-installed server virtualization platform. SearchConvergedIT.com covers converged and hyper-converged
infrastructure solutions. SearchITOperations covers DevOps, the impact of Agile Development, containers, microservices and event-driven computing
upon IT operations, as well as the deployment of hybrid cloud architectures and multi-cloud management.
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
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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
focuses 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.
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CIO/IT Strategy. Our CIO/IT Strategy media group provides content targeted at 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 IT infrastructure and strategy.
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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.
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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
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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 microservices. 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 SearchMicroservices.com and eBizQ.net serve
Architects, IT Managers and Line of Business Executives who are interested in adapting existing architectures to meet the speed, scale and agility
needs of today’s modern applications.
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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 and 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.
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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, 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 customers to the broader audiences that visit these sites for information.
Product and Service Offerings
We use our online offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT decision makers. The following is a
description of the products and services we offer:
IT Deal Alert. IT Deal Alert is a suite of products and services for IT vendors that leverages the detailed purchase intent data that we collect about end-user
IT organizations. Through proprietary scoring methodologies, we use this insight to help our customers identify and prioritize accounts whose content consumption
around
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specific IT topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile accounts’
upcoming purchase plans.
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IT Deal Alert: Qualified Sales Opportunities ™. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects,
including information on scope and purchase considerations, in approximately 80 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 and a leading marketing automation system from Marketo, Inc. The service delivers information that enables marketers and sales
personnel to identify and understand accounts and individuals actively researching new technology purchases and then to engage those active
prospects within the organizations that are relevant to the purchase. We sell this service in approximately 300 technology-specific segments which our
customers use for demand generation, account-based marketing and other marketing and sales activities.
IT Deal Alert: Deal Data ™. Deal Data is a customized solution aimed at sales intelligence and data scientist functions within our customer
organizations. It renders our Activity Intelligence data directly consumable by the customer’s internal applications.
IT Deal Alert: TechTarget Research ™. TechTarget Research is a product that sources proprietary information about purchase transactions from IT
professionals who are making or have recently completed these purchases. The offering provides data on market trends, pricing dynamics and vendor
win/loss and displacement trends in the form of quarterly, bi-annual, and annual reports.
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 sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our demand solutions campaigns offer the Activity Intelligence Dashboard, a tool that gives our
customers’ marketers and sales representatives a near real-time view of their prospects, including insights on the research activities of technology buying teams at
the individual, team and account levels. Demand solutions offerings may also include an additional service, TechTarget Re-Engage™, which helps both technology
marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate engagement with
specific accounts.
Our demand solutions offerings may also include the following program components:
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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 near 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.
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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
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to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors in a single segment, with the registrant information
provided to all participating sponsors. Because these offerings are editorially driven, our customers get the benefit of association with independently
created content as well as access to sales leads that are researching the topic.
Brand Solutions. Our suite of brand solutions offerings provides IT vendors exposure to targeted audiences of IT professionals actively researching
information related to their products and services. We leverage our Activity Intelligence product framework to enable significant segmentation and targeting of
specific audiences that can be accessed through these programs. Components of brand programs may include:
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On-Network Branding. These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites
we operate. Programs may include specific sites or audience segments across our sites.
Off-Network Branding. Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are
visiting other websites on the Internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against
our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.
•
Microsites and Related Formats. We have a range of solutions that create stand-alone websites for IT vendors, or “embedded” websites that exist
within the context of our existing websites, to enable a more immersive experience for IT professionals with the content and brand messaging of the
vendor.
Custom Content Creation. We will at times create white papers, case studies, webcasts or videos to our customers’ specifications through our Custom
Content team. These customized content assets are then promoted to our audience within both demand solutions and brand solutions programs.
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 their organization and during critical stages of the sales cycle. As a result, individual customers often run multiple marketing
programs with us in order to reach discrete portions of our targeted audience. Our products and services are delivered under both short-term contracts that run for
the length of a given marketing program, typically less than six months and via integrated, annual relationships covering various client needs across the year. We
have developed a broad customer base and delivered campaigns to approximately 1,300 companies in 2016. During 2016, 2015 and 2014, no single customer
represented 10% or more of total revenues.
See Note 13 to our 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 customers. 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, 2016, our sales and marketing staff consisted of approximately 294 people. The majority of our sales staff is located in our Newton,
Massachusetts headquarters and our offices in San Francisco, California and London, England.
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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 reach technology
marketers, as well as engaging in direct communications with the database of relevant 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 videocasts, blogs and white papers for technology
marketers where we provide information on the latest best practices in the field of online business-to-business (“B2B”) tech marketing.
Through our Analyst Relations, Press and Public Relations activities, we develop and maintain relationships with key analysts, publications and influencers
covering B2B marketing and sales topics.
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 from this, growing our membership. We also make user-
focused marketing expenditures designed to supplement our non-paid traffic and registered members. We employ a variety of online marketing vehicles such as
keyword advertising on the major search engines and targeted list rentals of opt-in e-mail subscribers from a variety of targeted media sources.
Technological Infrastructure
We have developed an expandable operations infrastructure using hardware and software systems from established IT vendors to maintain our websites and
online offerings. Our system hardware is co-located at an offsite data center. All of the critical components of the system are redundant, allowing us to withstand
unexpected component failure and to undergo maintenance and upgrades. Our infrastructure is scalable, enabling us to make additions that fit into the existing
environment as our system requirements grow based on traffic and member growth. Our critical data is copied daily to backup tapes, which are sent to an off-site
storage facility. We maintain a quality assurance process to constantly monitor our servers, processes and network connectivity. We have implemented these
various redundancies and backup systems in order to minimize the risk associated with damage from fire, power loss, 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 marketing 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 include media companies that produce content specifically for IT professionals, providers of technology-based point solutions for data
analysis and other service providers. Our primary media competitors, each of which possesses substantial resources to compete, are J2 Global, Madison Logic,
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. 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 J2
Global, QuinStreet, International Data Group, and CBS Interactive/CNET. In the data-oriented businesses, we compete with providers of predictive analytics and
internet-based analysis including companies like 6sense,Infer, Bombora and TheBigWillow. In general marketing services, we compete with list and lead providers
of various types including companies like DiscoverOrg. As we continue to expand internationally, we expect to compete with many of the
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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 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.
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
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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 (“EU”) 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 EU, certain member state data protection authorities regard IP addresses as personal information, and legislation
adopted recently in the EU 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.
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 in the U.S. with the U.S. Patent and Trademark Office and in select 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, 2016, we had 659 employees. Other than a small number of employees in the United Kingdom and France, none of our current
employees are represented by a labor union or are the subject of a collective bargaining agreement.
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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 marketing activity in summer months. 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, 2016. We believe that advertising spending on the Internet, as in traditional media, fluctuates
significantly as a result of a variety of factors, many of which are outside of our control. These factors include:
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variations in expenditures by advertisers due to budgetary constraints;
the cancellation or delay of projects by advertisers;
the cyclical and discretionary nature of advertising spending;
general economic conditions, as well as economic conditions specific to the Internet and online and offline media industry; and
the occurrence of extraordinary events, such as natural disasters and international or domestic political and economic unrest.
Because all of our customers are in the IT industry, our revenues are subject to characteristics of the IT industry that can affect advertising spending by IT
vendors.
Because all of our clients are in the IT industry, the success of our business is closely linked to the health, and subject to market conditions, of the IT
industry. The IT industry is characterized by, among other things, volatile quarterly results, uneven sales patterns, short product life cycles, rapid technological
developments and frequent new product introductions and enhancements. As a result, our customers’ advertising budgets, which are often viewed as discretionary
expenditures, may increase or decrease significantly over a short period of time. Many of our customers have reassessed and will, for the foreseeable future, be
likely to continue to scrutinize their spending on advertising campaigns. Prior market downturns in the IT industry have resulted in declines in advertising
spending, which can cause longer sales cycles, deferral or delay of purchases by IT vendors and generally reduced expenditures for advertising and related services.
Our revenues and profitability depend on the overall demand for advertising services from our customers. We believe that demand for our offerings has been in the
past, and could be in the future, disproportionately affected by fluctuations, disruptions, instability or
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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
marketing and advertising service 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:
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weakness in corporate IT spending, resulting in a decline in IT marketing and 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 marketing and advertising spend;
reduced spending by combined entities following such consolidations; and
the timing of marketing and 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 decrease in revenues in the year ended December 31, 2016,
compared to the year ended December 31, 2015, was offset in part, by an increase in 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.
Our revenues are primarily derived from short-term contracts that may not be renewed.
The primary source of our revenues is the sale of marketing and advertising services to our customers, and we expect that this will continue to be the case for
the foreseeable future. Our 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 customers or a few large customers decided not to continue purchasing marketing and advertising services on our websites,
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 customers 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 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 customers 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
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or cost-effective manner. Our ability to develop and produce this specialized content successfully is subject to numerous uncertainties, including our ability to:
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anticipate and respond successfully to rapidly changing IT developments and preferences to ensure that our content remains timely and interesting to
our users;
attract and retain qualified editors, writers and technical personnel;
fund new development for our programs and other offerings;
successfully expand our content offerings into new platform and delivery mechanisms; and
promote and strengthen the brands of our websites and our name.
If we are not successful in maintaining and growing our user base through the deployment of targeted and compelling content, our ability to retain and attract
customers 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 research and editorial content through Internet search engines, such as
Google, MSN, Bing and Yahoo!. A critical factor in attracting users to our websites is whether we are prominently displayed in response to an Internet search
relating to IT content. Search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet
search engine. The algorithms determine the order of the listing of results in response to the user’s Internet search. From time to time, search engines revise their
algorithms. In some instances, these modifications may cause our websites to be listed less prominently in unpaid search results, which will result in decreased
traffic from search engine users to our websites. Our websites may also become listed less prominently in unpaid search results for other reasons, such as search
engine technical difficulties, search engine technical changes and changes we make to our websites. In addition, search engines have deemed the practices of some
companies to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all. Although 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 our international operations, as well as the expansion of those operations, that could adversely affect our business.
Approximately 25% of our revenues for the year ended December 31, 2016 were derived from customers with billing addresses outside of the U.S.
Approximately 32% of our online 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:
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limitations on our activities in foreign countries where we have granted rights to existing business partners;
the degree to which our foreign-based customers transition from print to online marketing and advertising;
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the adaptation of our websites and marketing 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 (and domestic) 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.
The United Kingdom’s vote to withdraw from the EU in accordance with the national referendum held on June 23, 2016 (“Brexit”) could adversely affect the
Company. In particular, our European and Middle East operations are based out of the United Kingdom. We employ approximately 59% of our non-U.S. workforce
in the United Kingdom (10% of our overall workforce), and we generate 9% of our revenues from customers with billing addresses in the United Kingdom.
Additionally, our United Kingdom office provides sales support to other European and Middle East regions, including our French and German operations, and there
could be a material adverse impact on our ability to continue providing this support depending on the terms of the United Kingdom’s withdrawal. In January 2017,
the United Kingdom’s Prime Minster and Parliament signaled the intention to invoke Article 50 of the Treaty on European Union and commence formal
negotiations with respect to the terms of the United Kingdom’s withdrawal and post-exit arrangements in March 2017. This process will likely be complex and
protracted with negotiations taking years to complete. Moreover, there can be no assurance regarding the exact terms, timing or even the consummation of any such
arrangements. The proposed withdrawal could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory
regimes to which our business in the European marketplace is subject. The withdrawal could also, among other potential outcomes, disrupt the free movement of
goods, services and people between the United Kingdom and the EU and significantly disrupt trade between the United Kingdom and the EU and other parties.
Further, uncertainty around these and related issues, including political uncertainty in other EU member states, could lead to adverse effects on the economy of the
United Kingdom and the other economies in which we operate. There can be no assurance that any or all of these events will not have a material adverse effect on
our business operations, results of operations and financial condition.
As a result, we may face difficulties and unforeseen expenses in expanding our business internationally and, 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
(“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
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(“TTGT China”) and our affiliated Chinese entity, Keji Wangtuo (Beijing) Information Technology Co., Ltd (“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 marketing and advertising services. Accordingly, we operate our websites and our online marketing and
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 marketing and 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 customers marketing and advertising spending is intense, and we may not compete successfully, which could result in a material reduction in
our market share, the number of our customers and our revenues.
We compete for potential customers 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, J2 Global, QuinStreet, Madison Logic and CBS
Interactive/CNet. Customers may choose our competitors over us not only because they prefer our competitors’ online offerings to ours but also because customers
prefer to utilize other forms of marketing and advertising services offered by our competitors that are not offered by us and/or to diversify their marketing and
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
customers. 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, customers 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 customers 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
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audiences. In order to promote our brands, we may find it necessary to increase our marketing budget, hire additional marketing and public relations personnel or
otherwise increase our financial commitment to creating and maintaining brand loyalty among our clients. If we fail to promote and maintain our brands
effectively, or incur excessive expenses attempting to promote and maintain our brands, our business and financial results may suffer.
If we do not retain our key personnel, our ability to execute our business strategy will be adversely affected.
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our executive officers and key
management. Our management team has significant industry experience and would be difficult to replace. These individuals possess sales, marketing, financial and
administrative skills that are critical to the operation of our business. The competition for these employees is intense. The loss of the services of one or more of our
key personnel could have a material adverse effect on our business and operating results.
We may not be able to attract, hire and retain qualified personnel cost-effectively, which could impact the quality of our content and services and the
effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.
Our success depends on our ability to attract, hire and retain qualified technical, editorial, sales and marketing, customer support, financial and accounting
and other managerial personnel at commercially reasonable rates. The competition for personnel in the industries in which we operate is intense. Our personnel
may terminate their employment at any time for any reason. Loss of personnel may also result in increased costs for replacement hiring and training. If we fail to
attract and hire new personnel or retain and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our
customers properly or maintain the quality of our content and services. In particular, our success depends in significant part on maintaining and growing an
effective sales force. This dependence involves a number of challenges, including:
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the need to hire, integrate, motivate and retain additional sales and sales support personnel;
the need to train new sales personnel, many of whom lack sales experience when they are hired; and
competition from other companies in hiring and retaining sales personnel.
We may fail to identify or successfully acquire and integrate businesses, products and technologies that would otherwise enhance our 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:
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difficulty in assimilating the operations and personnel of acquired businesses;
potential disruption of our ongoing businesses and distraction of our management and the management of acquired companies;
difficulty in incorporating acquired technology and rights into our offerings and services, which could result in additional expenses and/or technical
difficulties in delivering our product offerings;
potential failure to achieve additional sales and enhance our customer base through cross-marketing of the combined company’s 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.
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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.
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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, libel, 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 marketing and advertising service 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.
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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 customers 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 content to our users and detailed lead data to our customers, thereby
impairing our ability to maintain and grow our audience and maximize revenue from our customers. 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 marketing and 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 marketing and 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 EU 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 EU, certain member state data protection authorities regard IP addresses as
personal information, and legislation in the EU 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 (“Safe Harbor”) and self-certification process in order to
transfer and process the personal data of people in the EU in a manner that the EU, until recently, deemed adequate to protect the security of such information. On
October, 6, 2015, the European Court of Justice declared that Safe Harbor was no longer valid. U.S. and EU lawmakers in February 2016 announced a replacement
for Safe Harbor, called the EU-U.S. Privacy Shield Framework Principles (“the Privacy Shield”). On July 12, 2016, the European Commission deemed the Privacy
Shield adequate to enable data transfers of personal data from the EU to the U.S. On September 23, 2016, the Company completed the initial documentation and
process requirements and self-certified to the Privacy Shield. The Company received final confirmation from the FTC regarding certification and compliance with
the Privacy Shield requirements on February 10, 2017. On January 25, 2017, President Trump issued an executive order directing U.S. government agencies to
ensure that their privacy policies exclude persons who are not U.S. citizens or lawful permanent residents from the protections of the U.S. Privacy Act of 1974
regarding personally identifiable information. Despite initial concerns regarding impacts to the Privacy Shield, the European Commission subsequently reported
that the executive order did not threaten the viability of the Privacy Shield.
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We will continue to monitor potential changes in legal or regulatory requirements of privacy laws, particularly with respect to impacts to the Privacy Shield.
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 marketing and 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 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 marketing content 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 marketing and 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.
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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 marketing and advertising space.
Our operations are dependent on our communications systems and computer hardware, all of which are located in data centers operated by third parties.
These systems could be damaged by natural disasters, power loss, telecommunication failures, viruses, hacking and similar events outside of our control. Our
insurance policies have limited coverage levels for loss or damages in these events and may not adequately compensate us for any losses that may occur. In
addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients’ customers and vendors 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 our users, customers and strategic partners depends on the satisfactory performance, reliability and
availability of our Internet infrastructure. Our Internet marketing and 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 marketing and advertising on our networks or
websites, thereby reducing our 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
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operators from discriminating against legal traffic that transverses 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 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 control 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 consolidated financial statements. We had
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$93.5 million of goodwill and $0.6 million of net intangible assets as of December 31, 2016. The goodwill was recorded because the fair value of the net tangible
assets and/or intangible 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, 2016. We evaluate other intangible assets subject to
amortization whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. If goodwill or other intangible
assets are determined to be impaired, we will write off the unrecoverable portion as a charge to our earnings. If we acquire new assets and businesses in the future,
as we intend to do, we may record additional goodwill and/or intangible assets. The possible write-off of the goodwill and/or intangible assets could negatively
impact our future earnings and, as a result, the market price of our common stock could decline.
The trading price 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 marketing 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 marketing spending, based on product launch schedules, annual budget approval processes
for our customers and
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the historical decrease in marketing spending in the summer months. Due to the foregoing as well as other risks described in this Risk Factors section, our results of
operations in one or more quarters may fall below the expectations of investors and/or securities analysts. In such an event, the trading price of our common stock
is likely to decline.
Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.
Various provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy contest or change
of control. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the
then-current market price for our common stock. Among other things, our certificate of incorporation and bylaws:
•
authorize our Board of Directors to issue preferred stock with the terms of each series to be fixed by our Board of Directors, which could be used to
institute a “poison pill” that would work to dilute the share ownership of a potential hostile acquirer, effectively preventing acquisitions that have not
been approved by our board;
•
•
•
•
divide our Board of Directors into three classes so that only approximately one-third of the total number of directors is elected each year;
permit directors to be removed only for cause;
prohibit action by written consent of our stockholders; and
specify advance notice requirements for stockholder proposals and director nominations. In addition, with some exceptions, the Delaware General
Corporation Law restricts or delays mergers and other business combinations between us and any stockholder that acquires 15% or more of our voting
stock.
Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the trading price of our common
stock could decline significantly. A large portion of our outstanding shares of common stock is held by our officers, directors and significant stockholders. Our
directors, executive officers and significant stockholders beneficially own approximately 12.7 million shares of our common stock, which represents 46% of our
outstanding shares as of December 31, 2016. 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 46% of our outstanding common stock as of December 31,
2016. 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.
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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 that 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.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the Nasdaq Global Market under the trading symbol “TTGT”. The following table sets forth the high and low sales prices of
our common stock, as reported by the Nasdaq Global Market, for each quarterly period in 2016 and 2015:
2016
Quarter ended March 31, 2016
Quarter ended June 30, 2016
Quarter ended September 30, 2016
Quarter ended December 31, 2016
2015
Quarter ended March 31, 2015
Quarter ended June 30, 2015
Quarter ended September 30, 2015
Quarter ended December 31, 2015
High
Low
$ 8.93
$ 8.95
$ 9.24
$ 8.97
$12.63
$12.04
$10.94
$ 9.60
$ 5.98
$ 7.03
$ 6.73
$ 7.85
$10.34
$ 8.48
$ 8.43
$ 7.78
The closing sale price of our common stock, as reported by the Nasdaq Global Market, was $9.15 on February 28, 2017.
Holders
As of February 28, 2017 there were 89 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.
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Stock Performance Graph
The following graph compares the cumulative total return to stockholders of our common stock for the period from December 31, 2011 to December 31,
2016, 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, 2011 in our common stock, the Russell 2000 Index and the S&P 500 Media Industry Index and assumes any dividends are reinvested.
TechTarget Inc.
Russell 2000
S&P 500 Media Industry
12/11
12/12
12/13
12/14
12/15
12/16
$ 100.00 $ 95.03 $ 117.47 $ 194.69 $ 137.50 $ 146.06
$ 100.00 $ 116.35 $ 161.52 $ 169.43 $ 161.95 $ 196.45
$ 100.00 $ 139.90 $ 214.41 $ 239.74 $ 223.86 $ 258.65
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 Exchange Act
of 1934, as amended (the “Exchange Act”), 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 Exchange Act.
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Issuer Purchases of Equity Securities
The following table provides information about purchases by our company during the three months ended December 31, 2016 of equity securities that are
registered by us pursuant to Section 12 of the Exchange Act.
Issuer Purchases of Equity Securities
Period
October 1, 2016 – October 31, 2016
November 1, 2016 – November 30, 2016
December 1, 2016 – December 31, 2016
Total
Total Number of
Shares Purchased(1)
2,723
145,178
293,561
441,462
Average Price
Paid Per Share
8.00
$
8.42
$
8.42
$
8.42
$
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or
Programs(1)
2,723
145,178
293,561
441,462
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the
Plans or Programs
15,725,272
$
14,502,855
$
12,031,496
$
12,031,496
$
(1)
In June 2016, we announced that the Board of Directors had approved a stock repurchase program, which authorized management 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.
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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, (in thousands except share and
per share data).
2016
2015
2014
2013
2012
Years Ended December 31,
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
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)
$101,827
4,798
106,625
$105,574
6,252
111,826
$ 97,607
8,596
106,203
$79,709
8,787
88,496
27,545
2,672
30,217
76,408
44,316
8,038
12,370
4,084
809
69,617
6,791
(1,774)
26,962
2,941
29,903
81,923
43,722
7,680
12,987
3,982
1,382
69,753
12,170
(249)
24,629
3,418
28,047
78,156
42,836
7,161
14,878
4,060
1,762
70,697
7,459
(333)
23,362
3,771
27,133
61,363
36,920
6,715
13,916
3,823
2,223
63,597
(2,234)
(260)
$88,192
11,799
99,991
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
5,017
2,598
2,419
11,921
4,735
7,186
$
0.08
0.08
$
$
0.22
0.21
$
$
$
$
$
$
7,126
3,045
4,081
(2,494)
(657)
$ (1,837)
0.12
0.12
$ (0.05)
$ (0.05)
$
$
0.10
0.10
29,954
32,963
33,010
37,886
40,211
30,774
34,476
34,641
37,886
40,910
$ 18,536
$ 24,499
$ 21,459
$ 9,598
$20,093
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Consolidated Balance Sheet Data:
Cash, cash equivalents and investments
Total assets
Long-term liabilities
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
2016
2015
As of December 31,
2014
(in thousands)
2013
2012
$
37,274
$ 170,077
34,566
$
$
52,514
$ (162,731)
$ 117,563
$
34,691
$ 177,859
2,827
$
$
17,858
$ (113,949)
$ 160,001
$ 38,183
$ 177,484
$
5,115
$ 21,638
$ (98,851)
$ 155,846
$ 33,772
$ 176,982
$
5,662
$ 19,920
$ (83,862)
$ 157,062
$ 76,340
$ 220,192
$
6,032
$ 20,878
$ (35,810)
$ 199,314
Years Ended December 31,
2016
2015
2014
2013
2012
$ 112
—
4,119
159
2,462
$6,852
$
84
—
3,530
111
2,899
$6,624
(in thousands)
$ 116
8
3,287
129
3,792
$7,332
$ 173
18
2,751
212
2,431
$5,585
$ 202
18
2,888
265
1,894
$5,267
(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 to our 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
Adjusted EBITDA
Years Ended December 31,
2016
2015
$ 2,419
1,774
2,598
4,084
809
—
11,684
6,852
—
$18,536
$ 7,186
249
4,735
3,982
1,382
341
17,875
6,624
—
$24,499
2014
(in thousands)
$ 4,081
333
3,045
4,060
1,762
308
13,589
7,332
538
$21,459
2013
2012
$(1,837)
260
(657)
3,823
2,223
201
4,013
5,585
—
$ 9,598
$ 4,024
(13)
4,185
3,279
3,351
—
14,826
5,267
—
$20,093
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
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structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age
and book depreciation of fixed assets (affecting relative depreciation expense), acquisition-related charges (such as amortization of intangible assets and earnouts)
and the impact of non-cash stock-based compensation expense costs. Because Adjusted EBITDA facilitates internal comparisons of operating performance on a
more consistent basis, we also use Adjusted EBITDA in measuring our performance relative to that of our competitors. We also use Adjusted EBITDA in
connection with our compensation of our executive officers and senior management. Adjusted EBITDA is not a measurement of our financial performance under
Generally Accepted Accounting Principles (“GAAP”) and should not be considered as an alternative to net income (loss), operating income (loss) or any other
performance measures derived in accordance with GAAP 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.
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial
statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result
of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.” Please
refer to our “Forward-Looking Statements” section on page 62.
Overview
Background
We are a Delaware corporation incorporated on September 14, 1999. Through continued innovation around our specialized online content for buyers of
enterprise information technology (“IT”), we have become a global leader in purchase intent-driven marketing and sales services that deliver business impact for
enterprise technology vendors. Our offerings enable technology vendors to better identify, reach and influence corporate IT decision makers actively researching
specific IT purchases. We improve vendors’ ability to impact these audiences for business growth using advanced targeting, analytics and data services
complemented with customized marketing programs that integrate demand generation and brand marketing and advertising techniques.
IT professionals have become increasingly specialized, and because each of the websites within our network of over 140 websites focuses on a specific IT
sector such as storage, security or networking, IT professionals rely on us for key decision support information tailored to their specific areas of responsibility.
We enable IT professionals to navigate the complex and rapidly-changing IT landscape where purchasing decisions can have significant financial and
operational consequences. Our content strategy includes three primary sources which IT professionals use to assist them in their pre-purchase research: independent
content provided by our professionals, vendor-generated content provided by our customers and user-generated, or peer-to-peer, content. In addition to utilizing our
independent editorial content, registered members appreciate the ability to deepen their pre-purchase research by accessing the extensive vendor supplied content
available across our website network. Likewise, these members derive significant additional value from the ability our network provides to seamlessly interact with
and contribute to information exchanges in a given field.
We had approximately 18.0 million and 16.9 million registered members—our “audiences”—as of December 31, 2016 and 2015, respectively. While the
size of our registered user base does not provide direct insight into our customer numbers or our revenues, the value of our services sold to our customers is a direct
result of the breadth and reach of this content footprint. This footprint creates the opportunity for our clients to gain business leverage by targeting our audiences
through customized marketing programs. Likewise, the behavior exhibited by these audiences enables us to provide our customers with data products to improve
their marketing and sales efforts. The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly
segmented and aligned with the IT vendors’ specific products. With it, we have developed a broad customer base, and now deliver marketing and sales services
programs to approximately 1,300 customers annually.
Executive Summary
Our revenues for the year ended December 31, 2016 declined approximately 5%, to $106.6 million, compared with the same period in 2015.
Online revenues declined 4% over the prior year, driven by a contraction of our core online offerings. In the year ended December 31, 2016, online revenue
from four large customers that were involved in corporate
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transactions, which we believe deferred or reduced their marketing and advertising budgets, was down approximately 42%, or approximately $5.6 million
compared with the prior year period. These declines in revenue from these large customers also contributed to declines in our online international geo-targeted
revenues, where our target audience is outside North America (“International”), which declined 5% compared to the prior year. Despite the contraction from these
four large customers, our overall IT Deal Alert sales grew 36% in 2016 as compared with 2015. With respect to the customers involved in corporate transactions,
we view these conditions as temporary. We expect that the corporate transactions affecting these large customers will be consummated and the companies’
marketing spend will return to levels similar to previous years.
As indicated, online international geo-targeted revenues, where our target audience is outside North America (“International”), declined 5% compared with
the prior year period, driven by a decrease in core online sales, primarily from our largest customers, which was offset in part by International IT Deal Alert
growth. The weakness in core online was distributed across Europe, the Middle East and Africa (“EMEA”), Asia Pacific (“APAC”) and Latin America. Overall,
International IT Deal Alert sales grew 50% in 2016 compared with 2015.
Gross margin was 72% and 73% for the years ended December 31, 2016 and 2015, respectively. Online gross profit decreased by $4.3 million, primarily
attributable to the decrease in core online revenues as compared to the same period a year ago. Events gross profit decreased by $1.2 million, primarily as a result
of lower events revenues as compared to the same period in the prior year. We announced on February 14, 2017 that we will be phasing out our events products.
Business Trends
The following discussion highlights key trends affecting our business.
•
•
Macro-economic Conditions and Industry Trends. Because most of our customers are IT vendors, the success of our business is intrinsically linked
to the health, and subject to the market conditions, of the IT industry. In 2016, we did not see any meaningful improvement in the IT market and many
of our customers continue to be revenue-challenged. This fact, coupled with our largest clients’ corporate transactions, as well as caution because of
foreign currency concerns, has continued to put pressure on marketing budgets. Our growth continues to be driven in large part by the return on the
investments we made in our data analytics suite of products, IT Deal Alert, which continues to drive market share gains for us. While we will continue
to invest in this growth area, management will continue to carefully control discretionary spending such as travel and entertainment, and the filling of
new and replacement positions, in an effort to maintain profit margins and cash flows.
Brexit. The announcement of the results of the United Kingdom’s referendum in which voters approved an exit of the United Kingdom from the EU,
commonly referred to as “Brexit”, has resulted in significant general economic uncertainty as well as volatility in global stock markets and currency
exchange rate fluctuations. The stock and currency market activity has resulted in the further strengthening of the U.S. dollar against certain foreign
currencies. The announcement and impact of Brexit may create further global economic uncertainty, which may cause a subset of our customers to
more closely monitor their costs in the affected region. In addition, there could be further uncertainty as the United Kingdom negotiates the future
terms of its relationship with the EU and its member states on a variety of levels. Our revenue generated from customers who have billing addresses
within the United Kingdom was approximately 9% of our total revenues for the year ended December 31, 2016.
•
Customer Demographics. 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 revenue outside the U.S., continue to be cautious. In 2016, online revenues from our top 12 global customers, which have
the most international exposure, decreased by approximately 12% compared to 2015, driven in part from the large corporate transactions noted above.
Online revenues from our mid-sized customers (our next largest 100 customers, who have less exposure internationally) increased by approximately
7% year over year. Online revenues attributable to our smaller customers, which tend to be venture capital-backed start-ups that primarily operate in
North America, decreased by approximately 3% over the
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prior year. 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 2016, approximately 32% of our online revenues were derived from International campaigns. International marketing budgets
continue to be challenged by the effects of the strong dollar and the uncertainty caused by Brexit. International results were also impacted by the large
corporate transactions noted above. We rolled out Priority Engine in Europe in the third quarter of 2016 and we launched Priority Engine in APAC
during the fourth quarter of 2016.
Product —IT Deal Alert revenues were approximately $31.4 million in the year ended December 31, 2016, up from approximately $23.2 million in
2015. This includes International IT Deal Alert revenues of $5.7 million, which is also included in International revenues as discussed above. In the
fourth quarter of 2016, we had more than 400 active customers utilizing our IT Deal Alert products and services, up from 288 customers in the fourth
quarter of 2015. We expect IT Deal Alert to continue to be a meaningful growth driver through 2017.
Our core online revenue was down 15% in 2016, which was disproportionately driven by our largest spenders. We have looked extensively at the
dynamics between our IT Deal Alert and core online offerings and have evaluated whether our growth in IT Deal Alert customers is taking away from
our core online revenues from those same accounts. The data, however indicates that this is not the case, and while it is certainly the case that our sales
team is leading with IT Deal Alert, and emphasizing the benefits of integration across both IT Deal Alert and core online offerings, if customers do not
buy integrated solutions, and instead buy standalone offerings, it is increasingly the case that their purchase may be an IT Deal Alert offering. Our
analysis of customer trends, however, indicates that this dynamic is not the major contributor to overall declines in core online.
For the largest global accounts referenced above, the declines in their core online spending are greater than their increases in IT Deal Alert spending.
These spending decisions, however, are disconnected. Outside of the large global accounts, we are seeing some very interesting dynamics. Non-global
accounts that spent on IT Deal Alert in 2016 had approximately 10% growth on a year over year basis with regard to their core online spending. And,
conversely, non-global accounts that did not spend on IT Deal Alert in 2016 had double-digit rates of decline on core online. We believe takeaway is
that IT Deal Alert provides us with the best foundation to grow core online revenue going forward.
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Sources of Revenues
Revenue for the twelve month periods ended December 31, 2016, 2015 and 2014 by product and geo-target were 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,
2016
$101,827
2015
$105,574
2016 vs.
2015
% change
(4)%
43,296
25,743
69,039
51,754
19,395
71,149
27,127
5,661
32,788
30,648
3,777
34,425
43,296
27,127
70,423
51,754
30,648
82,402
25,743
5,661
31,404
$
4,798
$106,625
19,395
3,777
23,172
$
6,252
$111,826
(16)%
33%
(3)%
(11)%
50%
(5)%
(16)%
(11)%
(15)%
33%
50%
36%
(23)%
(5)%
2014
$ 97,607
52,734
14,257
66,991
28,090
2,526
30,616
52,734
28,090
80,824
14,257
2,526
16,783
$
8,596
$106,203
2015 vs.
2014
% change
8%
(2)%
36%
6%
9%
50%
12%
(2)%
9%
2%
36%
50%
38%
(27)%
5%
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
programs with us in order to target their desired audience of IT professionals more effectively. There are multiple factors that can impact our customers’ marketing
and advertising objectives and spending with us, including but not limited to, IT product launches, increases or decreases to their advertising budgets, the timing of
key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or
generating sales leads. Our products and services are generally delivered under short-term contracts that run for the length of a given program, typically less than
six months. In 2016, we began to enter into annual contracts with certain customers, and in the quarter ended December 31, 2016, approximately 15% of our online
revenue was from long-term contracts of approximately 12 months. In the year ended December 31, 2016, 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 31% of online revenue as compared with approximately 22% and 17% for the same period in 2015 and 2014, respectively.
The majority of our revenues are derived from the delivery of our online offerings. Online revenue represented 96%, 94% and 92% of total revenues for the
years ended December 31, 2016, 2015 and 2014, respectively.
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Product and Service Offerings
We use our online offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT decision makers. The following is a
description of the products and services we offer:
IT Deal Alert. IT Deal Alert is a suite of products and services for IT vendors that leverages the detailed purchase intent data that we collect about end-user
IT organizations. Through proprietary scoring methodologies, we use this insight to help our customers identify and prioritize accounts whose content consumption
around specific IT topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile
accounts’ upcoming purchase plans.
•
•
•
•
IT Deal Alert: Qualified Sales Opportunities ™. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects,
including information on scope and purchase considerations, in approximately 80 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 and a leading marketing automation system from Marketo, Inc. The service delivers information that enables marketers and sales
personnel to identify and understand accounts and individuals actively researching new technology purchases and then to engage those active
prospects within the organizations that are relevant to the purchase. We sell this service in approximately 300 technology-specific segments which our
customers use for demand generation, account-based marketing and other marketing and sales activities.
IT Deal Alert: Deal Data ™. Deal Data is a customized solution aimed at sales intelligence and data scientist functions within our customer
organizations. It renders our Activity Intelligence data directly consumable by the customer’s internal applications.
IT Deal Alert: TechTarget Research ™. TechTarget Research is a subscription product that sources proprietary information about purchase
transactions from IT professionals who are making or have recently completed these purchases. The offering provides data on market trends, pricing
dynamics and vendor win/loss and displacement trends.
Core Online. Our core online offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to
generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers.
Demand Solutions. Our suite of demand solutions offerings allows IT vendors to maximize ROI by capturing sales leads from the distribution and
promotion of content to our audience of IT professionals. All of our demand solutions campaigns offer the Activity Intelligence Dashboard, a tool that gives our
customers’ marketers and sales representatives a near real-time view of their prospects including insights on the research activities of technology buying teams at
the individual, team and account levels. Demand solutions offerings may also include an additional service, TechTarget Re-Engage™, which helps both technology
marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate engagement with
specific accounts.
Our demand solutions offerings may also include the following program components:
•
White Papers. White papers are technical documents created by IT vendors to describe business or technical problems which are addressed by the
vendors’ products or services. In a program that includes demand solutions, we post white papers on our relevant websites and our users receive
targeted promotions about these content assets. Prior to viewing white papers, our registered members and visitors supply their corporate contact
information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are
supplied to the vendor in real time through our proprietary lead management software.
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•
Webcasts, Podcasts, Videocasts and Virtual Trade Shows . Webcasts, podcasts, videocasts, virtual trade shows and similar content bring informational
sessions directly to attendees’ desktops and mobile devices. As is the case with white papers, our users supply their corporate contact and qualification
information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to
the registrant information and visibility before, during and after the event.
•
Content Sponsorships . IT vendors, or groups of vendors, pay us to sponsor independent editorially created content vehicles on specific technology
topics where the registrant information is then provided to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors
in a single segment, with the registrant information provided to all participating sponsors. Because these offerings are editorially driven, our customers
get the benefit of association with independently created content as well as access to sales leads that are researching the topic.
Brand Solutions. Our suite of brand solutions offerings provides IT vendors exposure to targeted audiences of IT professionals actively researching
information related to their products and services. We leverage our Activity Intelligence product framework to enable significant segmentation and targeting of
specific audiences that can be accessed through these programs. Components of brand programs may include:
•
•
On-Network Branding. These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites
we operate. Programs may include specific sites, or audience segments across our sites.
Off-Network Branding. Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are
visiting other websites on the Internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against
our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.
•
Microsites and Related Formats. We have a range of solutions that create stand-alone websites for IT vendors, or “embedded” websites that exist
within the context of our existing websites, to enable a more immersive experience for IT professionals with the content and brand messaging of the
vendor.
Custom Content Creation. We will at times create white papers, case studies, webcasts or videos to our customers’ specifications through our Custom
Content team. These customized content assets are then promoted to our audience within both demand solutions and brand solutions programs.
Events
Events revenues represented 4%, 6% and 8% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively. Historically, we have
operated a select number of face-to-face events, the majority of which are free to IT professionals and are sponsored by IT vendors. In 2017, we will cease to offer
these services to our customers and focus our efforts on enhancing our data driven product offerings and working with our customers to gain the fullest advantage
that our data-driven products can offer.
Cost of Revenues, Operating Expenses and Other
Expenses consist of cost of online and event revenues, selling and marketing, product development, general and administrative, depreciation, amortization
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 Revenue s. 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
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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.
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 Expense, Net. Interest expense, net consists primarily of interest costs and the related amortization of deferred issuance costs on amounts
borrowed under our Term Loan Agreement and amortization of premiums on our investments, less any interest income earned on cash, cash equivalents and short-
term and long-term investments. We historically have invested our cash in money market accounts, municipal bonds, government agency bonds, U.S. Treasury
securities and corporate bonds.
Other expense, net consists of non-operating gains or losses, primarily related to realized and unrealized foreign currency gains and losses on trade assets and
liabilities.
Application of Critical Accounting Policies and Use of Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated 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.
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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 marketing and 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 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. 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.
Online Offerings
IT Deal Alert . IT Deal Alert is a suite of products and services for IT vendors 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. We
recognize revenue from duration-based campaigns over the duration of the campaign, which is typically less than six months, and recognize revenue from cost per
lead marketing services during the period in which leads are delivered to our customers.
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.
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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.
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 (“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 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,
2016, 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, contingent
consideration and long-term debt. Due to their short-term nature and liquidity, the carrying value of these instruments with the exception of contingent
consideration and long-term debt approximates their estimated fair values. The fair value of contingent consideration was estimated using a discounted cash flow
method. Amounts outstanding under our long-term debt are subject to variable rates of interest based on current market rates, and as such, we believe the carrying
amount of these obligations approximates fair value.
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
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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 $2.0 million and $1.7 million at December 31, 2016 and 2015, respectively.
Stock-Based Compensation
We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in our results of
operations using the straight-line method over the vesting period of the award. 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
2016
46%
6 years
1.90%
— %
3.91
$
Years Ended December 31,
2015
47%
6 years
1.67%
— %
3.72
$
2014
78%
6 years
1.62%
— %
7.22
$
The expected volatility of options granted in 2016, 2015 and 2014 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 period.
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. We begin to capitalize our costs to develop software
and website applications when planning stage efforts are successfully completed, management has authorized and committed project funding, and it is probable that
the project will be completed and the software will be used as intended. 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 four 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 $2.8 million, $2.9 million and $3.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
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Income Taxes
We are subject to income taxes in both 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, 2016, we had state net operating loss (“NOL”) carryforwards of approximately $1.3 million which
expire at various dates through 2033. We also had foreign NOL carryforwards of $1.0 million, which may be used to offset future taxable income in foreign
jurisdictions until they expire at various dates through 2021. The deferred tax assets related to the foreign NOL carryforwards have been fully offset by a valuation
allowance.
Net Income Per Share
We calculate basic earnings per share (“EPS”) by dividing earnings available to common stockholders 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 and restricted
stock award programs 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 and restricted stock awards.
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Results of Operations
The following table sets forth our results of operations for the periods indicated:
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Operating income
Interest and other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Comparison of Fiscal Years Ended December 31, 2016 and 2015
Revenues
Revenues:
Online
Events
Total revenues
2016
Years Ended December 31,
2015
($ in thousands)
2014
$101,827 96%
4,798
4
106,625 100
$105,574 94%
6,252
6
111,826 100
$ 97,607
8,596
106,203
92%
8
100
27,545 26
2,672
3
30,217 28
76,408 72
26,962 24
2,941
3
29,903 27
81,923 73
24,629
3,418
28,047
78,156
23
3
26
74
44,316 42
8,038
8
12,370 12
4
4,084
1
809
69,617 65
6
6,791
(2)
(1,774)
5
5,017
2
2,598
2%
2,419
$
43,722 39
7,680
7
12,987 12
4
3,982
1
1,382
69,753 62
12,170 10
(0)
(249)
11,921 10
4
4,735
6%
7,186
$
42,836
7,161
14,878
4,060
1,762
70,697
7,459
(333)
7,126
3,045
4,081
$
40
7
14
4
2
67
7
(0)
7
3
4%
Years Ended December 31,
2016
2015
Increase
(Decrease)
Percent
Change
($ in thousands)
$101,827
4,798
$106,625
$105,574
6,252
$111,826
$ (3,747)
(1,454)
$ (5,201)
(4)%
(23)
(5)%
Online. Online revenues for the year ended December 31, 2016 (“fiscal 2016”) decreased by $3.7 million over the year ended December 31, 2015 (“fiscal
2015”). This decrease was primarily attributable to the aforementioned contraction in spending from four large customers who are involved in corporate
transactions. Partially offsetting these declines was an increase of $8.2 million in revenues from our IT Deal Alert product offerings.
Events. The decrease in events revenues is primarily due to a reduction in the number of custom and editorial events held during the period. As noted above,
we will cease offering these services to our customers during 2017.
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Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2016
2015
Increase
(Decrease)
Percent
Change
($ in thousands)
$27,545
2,672
$30,217
$76,408
$26,962
2,941
$29,903
$81,923
72%
73%
$
$
583
(269)
314
$ (5,515)
2%
(9)%
1%
(7)%
Cost of Online Revenues. The increase in cost of online revenues was primarily attributable to the slightly higher relative costs associated with servicing our
new product offerings as well as contracted services costs related fulfilling certain demand generation campaigns, partially offset by a decrease in labor-related
costs.
Cost of Events Revenues . The decrease in cost of events revenues was due to both decreases in variable direct and employee-related costs and the decrease in
the number of events that we conducted.
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 2016
was 72% as compared to 73% for fiscal 2015. Online gross profit decreased $4.3 million in fiscal 2016 as compared to the same period in 2015, primarily
attributable to the decrease in online revenues as compared to the same period a year ago, in addition to increased costs associated with our new products as well as
the contracted services associated with fulfilling certain demand generation campaigns. Online gross profit percentage decreased to 73% in fiscal 2016 from 74% in
fiscal 2015. Events gross profit decreased by $1.2 million, primarily as a result of the lower events revenues as compared to the same period in the prior
year. Events gross profit percentage decreased to 44% in fiscal 2016 from 53% in fiscal 2015. Because the majority of our costs are labor-related, we expect our
gross profit to fluctuate from period to period depending on the total revenues for the period. We expect the phase out of the events products to have a positive
impact on our gross profit and gross profit margin going forward.
Operating Expenses and Other
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation
Amortization of intangible assets
Total operating expenses
Interest and other expense, net
Provision for income taxes
Years Ended December 31,
Increase
(Decrease)
2015
($ in thousands)
Percent
Change
2016
$44,316
8,038
12,370
4,084
809
$69,617
$43,722
7,680
12,987
3,982
1,382
$69,753
$
$
594
358
(617)
102
(573)
(136)
$ (1,774)
$ (249)
$ (1,525)
$ 2,598
$ 4,735
$ (2,137)
1%
5
(5)
3
(41)
(0)%
612%
(45)%
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 lower head count and a decrease in variable compensation-related expenses when compared to the prior year.
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Product Development . The increase in product development expense was primarily caused by an increase in labor-related costs including stock-based
compensation, and development efforts toward new products. Costs that were capitalized associated with internal-use software and website development were
approximately the same year over year.
General and Administrative . The decrease in general and administrative expense for the year ended December 31, 2016 compared to the same period in
2015 was primarily caused by decreases in stock-based compensation and corporate taxes and the absence of amortization of a purchase price adjustment from
contingent consideration related to LeMagIT.
Depreciation and Amortization of Intangible Assets . Depreciation expense remained relatively flat when compared to 2015. The decrease in amortization of
intangible assets expense was attributable to certain intangible assets becoming fully amortized during fiscal 2015 and the first half of 2016.
Interest and Other Expense, Net . Interest expense, net in 2016 was $0.9 million compared to interest income, net of $53 thousand in 2015.The increase in
interest expense was primarily due to an increase of $0.9 million in interest expense associated with the term loan that we entered into during the second quarter of
2016. The increase in other expense of $0.6 million was due to an increase in foreign currency-related losses. The increase in foreign currency-related losses was
due to changes in exchange rates in countries where we record accounts receivable and accounts payable in the normal course of business, largely the United
Kingdom and Australia.
Provision for Income Taxes . Our effective tax rate was 52% and 40% for the years ended December 31, 2016 and 2015, respectively. We have permanent
differences that increase our tax expense on income or reduce our tax benefit on loss; the higher rate in 2016 as compared to 2015 was primarily due to an increase
in non-deductible expenses in the U.S. for 2016 largely related to stock-based compensation and foreign taxes. The effective tax rate differs from the statutory rate
primarily due to these permanent differences of non-deductible expenses, state income taxes, and foreign income taxes.
Comparison of Fiscal Years Ended December 31, 2015 and 2014
Revenues
Revenues:
Online
Events
Total revenues
Years Ended December 31,
2015
2014
Increase
(Decrease)
Percent
Change
($ 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 fiscal 2015 increased by $8.0 million over the year ended December 31, 2014 (“fiscal 2014”). This increase was primarily
attributable to a $6.4 million increase in revenues from new product offerings, primarily IT Deal Alert, and growth of International core online.
Events . The decrease in events revenues is primarily due to a reduction in the number of custom and editorial events held during the period.
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Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2015
2014
Increase
(Decrease)
Percent
Change
($ 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.
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.
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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 thousand compared to interest expense, net of $31 thousand 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 non-deductible
expenses and state income taxes.
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Selected Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2016. 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
Income (loss) before provision for (benefit
from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) per share—basic
Net income (loss) per share—diluted
2016
2015
For the Three Months Ended
March 31,
June 30, September 30, December 31, March 31,
June 30, September 30, December 31,
(in thousands, except per share data)
$ 24,269 $27,726 $
762
25,031
1,448
29,174
24,247 $
1,503
25,750
25,585 $ 23,048 $27,736 $
610
1,085
23,658
26,670
2,021
29,757
27,066 $
1,941
29,007
6,658
535
7,193
17,838
6,813
791
7,604
21,570
11,060
2,008
3,210
1,020
302
17,600
238
(58)
11,028
1,945
3,044
1,016
233
17,266
4,304
(508)
3,796
1,397
180
228
(48) $ 2,399 $
(0.00) $
0.08 $
(0.00) $
0.07 $
$
$
$
6,889
723
7,612
18,138
11,243
2,074
3,138
951
183
17,589
549
(471)
78
100
(22) $
(0.00) $
(0.00) $
56
7,185
623
7,808
18,862
6,529
455
6,984
16,674
6,719
877
7,596
22,161
10,985
2,011
2,978
1,097
91
17,162
1,700
(737)
10,341
1,776
3,020
1,008
373
16,518
156
(163)
10,958
2,032
3,591
1,016
344
17,941
4,220
250
6,802
710
7,512
21,495
11,526
1,915
3,265
999
337
18,042
3,453
(209)
963
873
90 $
4,470
1,641
(7)
(354)
347 $ 2,829 $
0.00 $
0.01 $
0.09 $
0.00 $
0.01 $
0.08 $
3,244
1,203
2,041 $
0.06 $
0.06 $
27,724
1,680
29,404
6,912
899
7,811
21,593
10,897
1,957
3,111
959
328
17,252
4,341
(127)
4,214
2,245
1,969
0.06
0.06
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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. Effective February 14,
2017, we announced the phase out of events. 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.
Liquidity and Capital Resources
Resources
At December 31, 2016, our cash, cash equivalents and investments totaled $37.3 million. Our cash, cash equivalents and investments increased $2.6 million
during fiscal 2016, primarily from cash generated from operations and the proceeds received from the term loan, offset by the repurchase of shares under the self-
tender, and our stock repurchase plan. Additionally, we utilized cash for purchases of property and equipment and other capitalized assets. 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,
2016
$37,274
$22,551
2015
(in thousands)
$34,691
$26,549
2014
$38,183
$23,200
Our cash, cash equivalents and investments at December 31, 2016 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 flows 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 78 days at December 31, 2016, 83 days at December 31, 2015 and 70 days at
December 31, 2014. The change in DSO year over year is primarily due to the timing of payments from all classes of customers.
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Cash Flows
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Operating Activities
2016
Years Ended December 31,
2015
(in thousands)
$ 18,163
$ (3,616)
$ (10,930)
$ 11,263
$ (4,933)
$ (10,805)
2014
$18,217
$ (4,733)
$ (9,535)
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.
The increase in cash provided by operating activities in fiscal 2016 compared to fiscal 2015 was primarily a result of changes in operating assets and
liabilities primarily driven by decreases in accounts receivable net of decreases in deferred revenue of $1.6 million during 2016, compared with increases in
accounts receivable net of increases in deferred revenue of $3.5 million in 2015. Additionally, cash from operations in 2015 was negatively impacted by payments
related to the LeMag earnout, as well as decreases in income taxes payable.
The decrease in cash provided by operating activities 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.
Investing Activities
Cash used in investing activities in the year ended December 31, 2016 was $3.6 million; $4.4 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, offset in part by
$0.8 million for the net sales of short-term investments.
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 net purchases of 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 net purchases of short-term and long-term investments.
Capital Expenditures . We have made capital expenditures primarily for computer equipment and related software needed to host our websites, internal-use
software development costs, as well as for leasehold improvements and other general purposes to support our growth. Our capital expenditures totaled $4.4 million,
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$3.7 million and $3.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. A majority of our capital expenditures in 2016, 2015 and 2014
were internal-use development costs and, to a lesser extent, computer equipment and related software.
We expect to spend approximately $3.7 million in capital expenditures in 2017, 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. We believe we can fund these future additions
through cash generated from operations.
Financing Activities
We received proceeds from the exercise of stock options in the amounts of $4.2 million, $2.8 million and $4.8 million in the years ended December 31,
2016, 2015, and 2014, 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 $0.2 million, $3.2 million, and $0.7 million in the years ended December 31, 2016,
2015, and 2014, respectively. These inflows were offset by $8.0 million used for the repurchase of shares under our stock repurchase program and $4.4 million
related to tax withholdings on net share settlements in 2016.
Additionally, as described in more detail below under “Term Loan and Credit Facility Borrowings”, on May 9, 2016, we entered into a Senior Secured Credit
Facilities Credit Agreement for a term loan (the “Term Loan Agreement”). Under the Term Loan Agreement, we borrowed and received $50 million in aggregate
principal amount pursuant to a five-year term loan (the “Term Loan”). On June 8, 2016, we completed a Tender Offer, as described below in more detail, utilizing
$40.8 million to repurchase our own shares. During 2016, we repaid $11.3 million of principal against the outstanding Term Loan.
Common Stock Repurchase Programs
In June 2016, we announced that our Board had authorized a $20 million stock repurchase program (the “June 2016 Repurchase Program”), whereby we are
authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be
determined by our Board from time to time. During 2016, we repurchased 980,329 shares of common stock for an aggregate purchase price of $8.0 million,
pursuant to the June 2016 Repurchase Program.
In February 2016, we announced that our Board had authorized a $20 million stock repurchase program (the “February 2016 Repurchase Program”),
whereby we were authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions at prices and in the
manner determined by our Board from time to time. This program was terminated concurrently with the approval of a tender offer in May 2016 (see Note 11 to our
Consolidated Financial Statements).
In August 2014, we announced that our Board had authorized a $20 million stock repurchase program (the “2014 Repurchase Program”), whereby we were
authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. In May 2015, our Board amended the
program to authorize an additional $10 million to be used for such purchases. During 2015, we repurchased 1,671,687 shares of common stock for an aggregate
purchase price of $15 million pursuant to the 2014 Repurchase Program. The 2014 Repurchase Program expired on December 31, 2015.
Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All
repurchased shares were funded with cash on hand as well as proceeds from a term loan entered into in the second quarter (see Note 8 to our Consolidated Financial
Statements).
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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.
Tender Offer
On May 10, 2016, we commenced a tender offer to purchase up to 8.0 million shares of our common stock at a price of $7.75 per share.
The tender offer expired on June 8, 2016. In accordance with the terms of the tender offer, we accepted for purchase 5,237,843 shares of our common stock
for a total of $40.8 million, which included approximately $0.2 million in costs directly attributable to the tender offer. In connection with the tender offer, TCV V,
L.P., TCV Member Fund, L.P. (along with TCV V, L.P., referred to as the “TCV Funds”) and TCV Management 2004, L.L.C. (“TCM 2004”), each a related party,
collectively tendered 3,379,249 shares of the Company’s common stock in the aggregate. Jay Hoag, a member of our board of directors at the time of the tender
offer, was also a member of the general partner of the TCV Funds and a member of TCM 2004, which at the time was estimated to hold more than 5% of the voting
securities of the Company. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the tender offer. Roger Marino, a member of our
board of directors, indirectly controls shares in Rogram LLC.
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. Because the shares were delivered
in 2015, there were no such accruals as of December 31, 2016, or 2015.
Term Loan and Credit Facility Borrowings
On May 9, 2016, we entered into the Term Loan Agreement, under which, we borrowed $50 million in aggregate principal amount pursuant to a five-year
term loan. The borrowings under the Term Loan Agreement are secured by a lien on substantially all of our assets, including a pledge of the stock of certain of our
wholly-owned subsidiaries.
Borrowings under the Term Loan Agreement must be repaid quarterly in the following manner: 2.5% of the initial aggregate borrowings are due and payable
each quarter for the first loan year and 5.0% of the initial aggregate borrowings are due and payable each quarter during each subsequent loan year. At maturity, all
outstanding amounts under the Term Loan Agreement will be due and payable. See Note 8 to our Consolidated Financial Statements for a schedule of the timing of
our installment payment commitments on this debt.
The Term Loan Agreement requires us to maintain compliance with certain covenants, including leverage and fixed charge coverage ratio covenants. At
December 31, 2016, we were in compliance with all covenants under the Term Loan Agreement.
At our option, the Term Loan Agreement bears interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such day and
(b) the Federal Funds Effective Rate in effect on such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50%. As of December 31, 2016, the
applicable rate was 3.12%, representing LIBOR plus the applicable margin of 2.50%. Interest expense under the Term Loan
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Agreement was $1.1 million for the year ended December 31, 2016, which includes non-cash interest expense of $60 thousand related to the amortization of the
deferred issuance costs.
Borrowings under the Term Loan Agreement may be prepaid at our option without penalty and must be repaid upon the occurrence of certain events
including certain events of default.
We were required to pay a one-time upfront administration and arrangement fee on the closing date. Thereafter, a non-refundable fee will be due and payable
on each anniversary of the effective date of the Term Loan Agreement. Total debt issuance costs paid in relation to the Term Loan Agreement were approximately
$0.4 million. The costs were recorded as a direct deduction from the carrying amount of the Term Loan and amortized as interest expense over the life of the Term
Loan Agreement.
We used the proceeds from the Term Loan to fund stock repurchases pursuant to the tender offer described above, and we also intend to use the remaining
proceeds to fund repurchases under our June 2016 Repurchase Program (see Note 11 to our Consolidated Financial Statements), as well as for general corporate
purposes. As noted above, during 2016 , we repaid principal of $11.3 million, reducing the carrying amount under the Term Loan Agreement to $38.4 million as of
December 31, 2016.
As of December 31, 2015, we had a $5.0 million Revolving Credit Facility (the “Prior Credit Agreement”), which was a discretionary $5.0 million demand
revolving line. There were no financial covenant requirements and no unused line fees under the Prior Credit Agreement, and there were no outstanding balances
under the Prior Credit Agreement at December 31, 2015. The Prior Credit Agreement was terminated concurrent with the establishment of the Term Loan
Agreement (see Note 8 to our Consolidated Financial Statements).
Contractual Obligations and Commitments
As of December 31, 2016, our principal contractual commitments consist of obligations under leases for office space and borrowings under our Term Loan
Agreement. The offices are leased under non-cancelable operating lease agreements that expire through 2021.
The following table sets forth our commitments to settle contractual obligations in cash as of December 31, 2016:
Contractual Obligations
Term loan payable
Operating leases
Total
Total
$38,750
16,058
$54,808
1 Year
$ 6,250
4,802
$ 11,052
3 Years
$20,000
9,899
$29,899
5 Years
$12,500
1,357
$13,857
Payments Due By Period (in thousands)
2–
Less than
4–
More than
5 Years
$ —
—
$ —
See Note 8 to the Consolidated Financial Statements for further information on our Term Loan Agreement, and Note 9 to the Consolidated Financial
Statements for further information with respect to our operating leases.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
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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 Exchange Act. 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 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 marketing and advertising and IT industries; and other matters included in our filings with
the Securities and Exchange Commission, including those detailed under Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the year ended
December 31, 2016. Actual results may differ materially from those contemplated by the forward-looking statements. We undertake no obligation to update our
forward-looking statements to reflect future events or circumstances.
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 25% of our
revenues for the year ended December 31, 2016 were derived from customers with billing addresses outside of the United States and our foreign exchange
gains/losses were not significant. We currently believe our exposure to foreign currency exchange rate fluctuations, including any impact of the United Kingdom’s
vote to withdraw from the European Union (“Brexit”), 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, 2016, we had cash, cash equivalents and investments totaling $37.3 million. These amounts were invested primarily in money market
accounts, municipal bonds and government agency bonds and, to a lesser extent, U.S. Treasury securities and corporate bonds. The cash, cash equivalents and
investments were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to
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the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result
of changes in interest rates. Declines in interest rates, however, would reduce future investment income.
Our exposure to market risk also relates to interest expense on borrowings under the Term Loan Agreement. At our option, the borrowings under the Term
Loan Agreement bear interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate
in effect for such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50% (see Note 8 to the Consolidated Financial Statements). At
December 31, 2016, there was $38.8 million of aggregate principal outstanding under the Term Loan Agreement.
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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, 2016 and 2015
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
64
Page
65
66
67
68
69
70
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TechTarget, Inc.
Newton, Massachusetts
We have audited the accompanying consolidated balance sheets of TechTarget, Inc. as of December 31, 2016 and 2015 and the related consolidated statements of
operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. 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, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, 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 10, 2017 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 10, 2017
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Assets
Current assets:
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2016
2015
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,961 and $1,715 as of December 31, 2016 and 2015,
$ 18,485
10,988
$ 14,783
10,646
respectively
Prepaid taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net of accumulated depreciation and amortization
Long-term investments
Goodwill
Intangible assets, net of accumulated amortization
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Current portion of term loan
Accrued expenses and other current liabilities
Accrued compensation expenses
Income taxes payable
Contingent consideration
Deferred revenue
Total current liabilities
Long-term liabilities:
Long-term portion of term loan
Deferred rent
Deferred tax liabilities
Total liabilities
Commitments and contingencies (See 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; 52,601,284 shares issued and 27,495,539 shares
outstanding at December 31, 2016; 50,927,426 shares issued and 32,039,853 shares outstanding at December 31, 2015
Treasury stock, 25,105,745 and 18,887,573 shares at December 31, 2016 and 2015, 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.
66
22,551
3,961
1,952
57,937
9,232
7,801
93,469
601
139
898
$ 170,077
$
2,100
6,157
2,792
698
122
—
6,079
17,948
32,286
2,080
200
52,514
26,549
5,306
2,192
59,476
8,922
9,262
93,701
1,448
4,210
840
$ 177,859
$
1,807
—
3,112
675
516
1,326
7,595
15,031
—
2,245
582
17,858
—
—
52
(162,731)
296,853
(248)
(16,363)
117,563
$ 170,077
51
(113,949)
293,003
(322)
(18,782)
160,001
$ 177,859
TechTarget, Inc.
Consolidated Statements of Operations and Comprehensive Income
(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
Interest and other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Other comprehensive loss, net of tax:
Unrealized (loss) gain on investments (net of tax benefit (provision) of $6, $(0), and $17, respectively)
Foreign currency translation adjustments
Other comprehensive income (loss)
Comprehensive income
Net income 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.
67
For the Years Ended December 31,
2015
2014
2016
$101,827
4,798
106,625
$105,574
6,252
111,826
$ 97,607
8,596
106,203
27,545
2,672
30,217
76,408
44,316
8,038
12,370
4,084
809
69,617
6,791
(1,774)
5,017
2,598
2,419
$
$
$
$
$
(10)
84
74
2,493
0.08
0.08
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
29,954
32,963
33,010
30,774
34,476
34,641
$
112
—
4,119
159
2,462
$
84
—
3,530
111
2,899
$
116
8
3,287
129
3,792
Table of Contents
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Balance, December 31, 2013
Common Stock
Treasury Stock
Number of
Shares
47,648,102
$0.001
Par Value
48
$
Number of
Shares
15,664,662
Cost
$ (83,862)
Additional
Paid-In
Capital
$270,726
Accumulated
Other
Comprehensive
(Loss) Income
$
199
Accumulated
Deficit
(30,049)
$
Total
Stockholders’
Equity
157,062
$
Issuance of common stock from stock options and restricted
stock awards
1,939,035
2
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
1,551,224
(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
1,223,528
1
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
Shares issued in payment of accrued compensation
Unrealized gain on investments
Unrealized loss on foreign currency translation
Net income
116,761
1,671,687
(15,098)
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)
$
Issuance of common stock from stock options and restricted
stock awards
1,673,858
1
Purchase of common stock through stock repurchase program
Purchase of common stock through tender offer (including
$0.2 in related costs)
Excess tax benefit and shortfalls—stock options
Stock-based compensation expense
Tax withholdings related to net share settlement of RSU’s
Unrealized loss on investments (net of tax benefit of $6)
Unrealized loss on foreign currency translation
Net income
980,329
(7,988)
5,237,843
(40,794)
4,191
(2,747)
6,852
(4,446)
(10)
84
Balance, December 31, 2016
52,601,284
$
52
25,105,745
$(162,731)
$296,853
$
(248)
$
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
4,192
(7,988)
(40,794)
(2,747)
6,852
(4,446)
(10)
84
2,419
117,563
4,081
(25,968)
$
7,186
(18,782)
$
2,419
(16,363)
$
See accompanying Notes to Consolidated Financial Statements.
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Table of Contents
TechTarget, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for bad debt
Amortization of investment premiums
Stock-based compensation
Amortization of debt issuance costs
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 investing activities
Financing activities:
Tax withholdings related to net share settlements
Excess tax benefit—stock options
Purchase of treasury shares and related costs
Purchase of shares through tender offer
Registration and other fees
Payment of earnout liabilities
Proceeds from exercise of stock options
Term loan proceeds
Debt issuance costs
Term loan principal payment
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes, net
See accompanying Notes to Consolidated Financial Statements.
69
For the Years Ended December 31,
2015
2014
2016
$ 2,419
$ 7,186
$ 4,081
4,893
894
308
6,852
60
1,125
(182)
—
3,107
343
(52)
299
722
(987)
40
(1,516)
(162)
18,163
(4,410)
(9,766)
10,560
(3,616)
(4,446)
182
(7,988)
(40,794)
—
(459)
4,192
50,000
(367)
(11,250)
(10,930)
85
3,702
14,783
$ 18,485
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)
(1,705)
3,216
(15,098)
—
(20)
—
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)
—
712
(14,989)
—
(62)
—
4,804
—
—
—
(9,535)
(86)
3,863
15,412
$ 19,275
$
$
892
711
$ —
$ —
$ 5,369
$
118
Table of Contents
TechTarget, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2016, 2015 and 2014
(In thousands, except share and per share data, where otherwise noted or
instances where expressed in millions)
1. Organization and Operations
TechTarget, Inc. and its subsidiaries (the “Company”) is a leading provider of specialized online content for buyers of enterprise information technology
(“IT”) products and services, and a leading provider of purchase-intent marketing and sales services for enterprise technology vendors. The Company’s service
offerings enable technology vendors to better identify, reach and influence corporate IT decision makers actively researching specific IT purchases. The Company
improves vendors’ ability to impact these audiences for business growth using advanced targeting, analytics and data services complemented with customized
marketing programs that integrate demand generation and brand advertising techniques. The Company operates a network of over 140 websites, each of which
focuses on a specific IT sector such as storage, security or networking. IT professionals have become increasingly specialized, and they have come to rely on the
Company’s sector-specific websites for purchasing decision support. The Company’s content platform enables IT professionals to navigate the complex and rapidly
changing IT landscape where purchasing decisions can have significant financial and operational consequences. At critical stages of the purchase decision process,
these content offerings through different channels meet IT professionals’ needs for expert, peer and IT vendor information and provide a platform on which IT
vendors can launch targeted marketing campaigns which generate measurable return on investment. Based upon the logical clustering of users’ respective job
responsibilities and the marketing focus of the products being promoted by the Company’s customers, the Company categorizes its content offerings to address the
key market opportunities and audience extensions across a portfolio of distinct media groups: Security; Networking; Storage; Data Center and Virtualization
Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; Channel; and TechnologyGuide.com.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in
these Notes to Consolidated Financial Statements.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, TechTarget Securities
Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited (“TTGT HK”), TechTarget (Beijing) Information Technology Consulting Co. Ltd. (“TTGT
Consulting”), TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS (“LeMagIT”) and TechTarget Germany GmbH. TSC is a
Massachusetts corporation. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TTGT HK is a subsidiary incorporated in Hong
Kong in order to facilitate the Company’s activities in the Asia-Pacific region. Additionally, through its wholly-owned subsidiaries, TTGT HK and TTGT
Consulting, the Company effectively controls a variable interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which was
incorporated under the laws of the People’s Republic of China (“PRC”). TechTarget (Australia) Pty Ltd. and TechTarget (Singapore) Pte Ltd. are the entities
through which the Company does business in Australia and Singapore, respectively; LeMagIT and TechTarget Germany GmbH, both wholly-owned subsidiaries of
TechTarget Limited, are entities through which the Company does business in France and Germany, respectively. Bitpipe, Inc., previously a wholly-owned
subsidiary, was merged into TechTarget, Inc. in the second quarter of 2016.
PRC laws and regulations prohibit or restrict foreign ownership of Internet-related services and advertising businesses. To comply with these foreign
ownership restrictions, the Company operates its websites and provides
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online advertising services in the PRC through KWIT. The Company entered into certain exclusive agreements with KWIT and its shareholders through TTGT HK,
which obligated TTGT HK to absorb all of the risk of loss from KWIT’s activities and entitled TTGT HK to receive all of its residual returns. In addition, the
Company entered into certain agreements with the authorized parties through TTGT HK, including Management and Consulting Services, Voting Proxy, Equity
Pledge and Option Agreements. TTGT HK assigned all of its rights and obligations to the newly formed wholly foreign-owned enterprise (“WFOE”), TTGT
Consulting. TTGT Consulting is established and existing under the laws of the PRC, and is wholly owned by TTGT HK.
Based on these contractual arrangements, the Company consolidates the financial results of KWIT as required by Accounting Standards Codification
(“ASC”) subtopic 810-10, Consolidation: Overall , because the Company holds all the variable interests of KWIT through TTGT Consulting, which is the primary
beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the
aforementioned agreements, whereby the equity holders of KWIT assigned all of their voting rights underlying their equity interest in KWIT to TTGT Consulting.
In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain
substantially all of the profits and absorb all of the expected losses of KWIT. All significant intercompany accounts and transactions between the Company, its
subsidiaries, and KWIT have been eliminated in consolidation.
Reclassifications
Certain prior year amounts related to deferred taxes have been reclassified for consistency with the current period presentation in connection with the
adoption of new accounting pronouncements. 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 GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenues, long-
lived assets, goodwill, the allowance for doubtful accounts, stock-based compensation, earnouts, self-insurance accruals and income taxes. 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 marketing and advertising campaigns, which are delivered via its network
of websites, data analytics solutions, and, historically, 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 service and 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
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deliverable on the basis of the deliverable’s best estimated selling price. Revenue is then recognized as delivery occurs. The Company typically offers standard 30
day cancellation terms under its agreements.
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. 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.
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 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 report 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 campaign offerings, the Company may guarantee a minimum number of sales 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 services provided by the Company. The Company recognizes revenue on duration-based campaigns ratably over the duration of the campaign, which is
usually less than six months and recognizes revenue on contracts where pricing is based on cost per lead during the period in which leads are delivered to its
customers.
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 Creation. Custom content revenue is recognized when the creation is completed and delivered to the customer.
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 .
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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. Historically, the majority of the Company’s events were free to qualified attendees and certain events were
based on a paid attendee model, but the Company announced on February 14, 2017 that it will be phasing out its events products. 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, long-term debt and
contingent consideration. Due to their short-term nature and liquidity, the carrying value of these instruments, with the exception of contingent consideration and
long-term debt, approximates their estimated fair values. See Note 3 for further information on the fair value of the Company’s investments. The Company
classifies all of its short-term and long-term investments as available-for-sale. Amounts outstanding under the Company’s long-term debt are subject to variable
rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. 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 a single reporting segment, it has been
determined that there is a single reporting unit and goodwill is therefore 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
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defined by ASC 350, to its carrying value to determine the amount of the impairment loss, if any. As of December 31, 2016, 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 was impaired. The Company did not have any intangible assets with indefinite lives as of December 31, 2016 or 2015.
Allowance for Doubtful Accounts
The Company reduces gross trade accounts receivable for 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, 2016, 2015 and 2014.
Year ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2016
Property and Equipment and Other Capitalized Assets
Balance at
Beginning
of Year
913
1,014
1,715
$
$
$
Provision
708
$
805
$
894
$
Acquired in
Business
Combinations
—
—
—
Write-offs,
Net of
Recoveries
(607)
$
(104)
$
(648)
$
Balance at
End of
Year
$
$
$
1,014
1,715
1,961
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
Estimated Useful Life
5 years
3 years
3–5 years
Shorter of useful life or remaining duration of lease
Property and equipment and other capitalized assets consist of the following:
Furniture and fixtures
Computer equipment and software
Leasehold improvements
Internal-use software and website development costs
Less: accumulated depreciation and amortization
74
As of December 31,
2016
$
988
3,722
2,050
23,782
30,542
(21,310)
$ 9,232
2015
$
794
4,051
1,510
20,934
27,289
(18,367)
$ 8,922
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Depreciation expense was $4.1 million, $4.0 million and $4.1 million for the years ended December 31, 2016, 2015 and 2014, 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 $1.1 million,
$1.3 million and $0.1 million of fully depreciated assets that were no longer in service during 2016, 2015 and 2014, respectively.
Depreciation expense is classified as a component of operating expense in the Company’s results of operations.
Internal-Use Software and Website Development Costs
The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to internal-use
software. The Company begins to capitalize costs to develop software and website applications when planning stage efforts are successfully completed,
management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.
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 four years. To the extent that the Company
changes the manner in which it develops and tests new features and functionalities related to its 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 it capitalizes and amortizes in future periods
would be impacted. 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 $2.8 million, $2.9 million and $3.0 million for the years ended December 31, 2016, 2015 and 2014, 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, 2016 or 2015. No single customer accounted for 10% or more of
total revenues in the years ended December 31, 2016, 2015 or 2014.
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”).
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The Company recognizes interest and penalties related to unrecognized tax benefits, if any, 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 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
Comprehensive income includes all changes in equity during a period, except those resulting from investments by stockholders and distributions to
stockholders. The Company’s comprehensive income includes changes in the fair value of the Company’s unrealized gains on available for sale securities and
foreign currency translation adjustments.
There were no reclassifications out of accumulated other comprehensive income in the periods ended December 31, 2016, 2015 or 2014.
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 loss.
Net Income 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 and restricted stock award programs 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.
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A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows:
Numerator:
Net income
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 Per Common Share:
Basic:
Net income applicable to common stockholders
Weighted average shares of stock outstanding
Net income per common share
Diluted:
Net income applicable to common stockholders
Weighted average shares of stock outstanding
Net income per common share(1)
2016
For the Years Ended December 31,
2015
2014
$
2,419
$
7,186
$
4,081
29,953,798
32,963,185
33,010,162
29,953,798
819,734
32,963,185
1,512,620
33,010,162
1,630,349
30,773,532
34,475,805
34,640,511
$
2,419
29,953,798
$
0.08
$
2,419
30,773,532
$
0.08
$
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)
In calculating diluted earnings per share, 1.3 million, 1.1 million and 1.0 million shares related to outstanding stock options and unvested, undelivered
restricted stock awards were excluded for the years ended December 31, 2016, 2015 and 2014, respectively, because they were anti-dilutive.
Recent Accounting Pronouncements
Accounting Guidance Adopted in 2016
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 previous
guidance, which required entities to separately present deferred tax assets and deferred tax liabilities as current and
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Table of Contents
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 resulted in the Company retrospectively reclassifying approximately $2.3 million in current deferred tax assets to noncurrent as of December 31,
2015.
Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue
recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09
also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB issued ASU
No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the
effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting
periods within those periods) beginning after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted only as of annual reporting
periods (including interim reporting periods within those reporting periods) beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which further clarifies the implementation guidance on principal versus agent
considerations contained in ASU 2014-09. In April and May 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU
2016-12, Narrow-Scope Improvements and Practical Expedients, respectively, each of which provide further implementation guidance for ASU 2014-09. The
Company is currently in the process of assessing the adoption methodology, which allows the standard to be applied retrospectively to each prior period presented,
or with the cumulative effect recognized as of the date of initial application. The Company continues to progress in its evaluation of the impact of the adoption of
the standard on other areas of its consolidated financial statements but has not yet determined whether the effect will be material to either its reported revenue or its
accounting for deferred commissions balances.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that
requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosure.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including
the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is
effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted. The adoption of
this guidance will result in the Company recognizing tax benefits related to stock compensation deductions as a benefit to income tax expense when they are
realized. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosure.
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Table of Contents
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term and long-term
investments and contingent consideration. The fair value of these financial assets and liabilities was determined based on three levels of input as follows:
•
•
•
Level 1. Quoted prices in active markets for identical assets and liabilities;
Level 2. Observable inputs other than quoted prices in active markets; and
Level 3. Unobservable inputs.
The fair value hierarchy of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:
Assets:
Money market funds(1)
Short-term investments(2)
Long-term investments(2)
Total assets
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)
$
$
4,301
—
—
4,301
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
$
—
10,988
7,801
$ 18,789
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
$
$
$
$
122
—
—
122
—
—
$
—
10,646
9,262
$ 19,908
$
$
—
—
Significant
Unobservable
Inputs
(Level 3)
$
$
—
—
—
—
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
—
—
—
—
1,326
1,326
December 31, 2016
$
$
4,301
10,988
7,801
23,090
December 31, 2015
$
$
$
$
122
10,646
9,262
20,030
1,326
1,326
(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, U.S. Treasury securities 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. The contingent consideration, net of a $0.4 million holdback, was paid in January 2016. The holdback was
subsequently settled with the stockholders in October 2016.
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Table of Contents
The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the year ended December 31, 2015. As
noted, these amounts were settled in full in 2016:
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
1,496
$
(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 (“LeMagIT”), 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 was subject to certain revenue growth targets and the payment was
adjusted each period 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 represented 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 included estimated
future revenues as well as the rates used to discount them. The installment payments were recorded at present value using a discount rate of 10%.
The earnout payment of $1.3 million, net of a $0.4 million holdback, was paid in January 2016. The portion of the payment that related to the fair value of
the earnout as of the acquisition date, amounting to approximately $0.5 million, is reflected in financing activities in the Company’s Consolidated Statement of
Cash Flows for the year ended December 31, 2016. The payment is reflected as an operating cash flow. The holdback was subsequently settled with the
stockholders in October 2016.
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
80
As of December 31,
2016
$14,184
4,301
$18,485
2015
$14,661
122
$14,783
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 loss, a component of stockholders’ equity, net of tax. The cumulative unrealized
loss, net of taxes, was $30, $19 and $20 as of December 31, 2016, 2015 and 2014, 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 2016, 2015 or 2014.
Short-term and long-term investments consisted of the following:
Short-term and long-term investments:
U.S. Treasury securities
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
Corporate bonds
Total short-term and long-term investments
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
$
—
1
—
—
1
$
$
(1)
(2)
(42)
(3)
(48)
December 31, 2015
Gross
Unrealized
Gains
$
$
—
—
—
—
Gross
Unrealized
Losses
$
$
(15)
(14)
(1)
(30)
Estimated
Fair Value
1,997
$
5,011
$
9,775
$
$
2,006
$ 18,789
Estimated
Fair Value
$
7,600
11,804
504
$ 19,908
Cost
$ 1,998
5,012
9,817
2,009
$18,836
Cost
$ 7,615
11,818
505
$19,938
The Company had 21 debt securities in an unrealized loss position at December 31, 2016. All of these securities have been in such a position for no more
than six months. The unrealized loss on those securities was approximately $48 and the fair value was $13.8 million. At December 31, 2015, the Company had
16 debt securities in an unrealized loss position, and the unrealized loss on those securities was approximately $30 and the fair value was $18.9 million at that date.
The Company uses specific identification when reviewing these investments for impairment. Because the Company does not intend to sell the investments that are
in an unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their cost basis, the Company does
not consider those investments with an unrealized loss to be other-than-temporarily impaired at December 31, 2016.
Municipal, government agency, and corporate bonds have contractual maturity dates that range from March 2017 to January 2019. 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, 2016 and 2015 are as follows:
Balance as of beginning of year
Effect of exchange rate changes
Balance as of end of year
81
As of December 31,
2016
$93,701
(232)
$93,469
2015
$93,979
(278)
$93,701
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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
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
Estimated
Useful Lives
(Years)
5-9
10
5-8
5
3
As of December 31, 2016
Gross
Carrying
Amount
$ 6,826
1,178
1,749
1,146
$ 10,899
Accumulated
Amortization
(6,807)
$
(705)
(1,664)
(1,122)
(10,298)
$
As of December 31, 2015
Gross
Carrying
Amount
$ 6,996
1,222
1,819
1,232
76
$ 11,345
Accumulated
Amortization
(6,379)
$
(603)
(1,685)
(1,154)
(76)
(9,897)
$
Net
$ 19
473
85
24
$601
Net
$ 617
619
134
78
—
$1,448
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 3.27 years.
Amortization expense was $0.8 million, $1.4 million and $1.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. Amortization expense
is recorded within operating expenses as the intangible assets consist of customer-related assets and website traffic that the Company considers to be in support of
selling and marketing activities. The Company wrote off $0.1 million of fully amortized intangible assets in 2016. The Company did not write off any intangible
assets in 2015.
The Company expects amortization expense of intangible assets to be as follows:
Years Ending December 31:
2017
2018
2019
2020
2021
Thereafter
82
Amortization
Expense
157
97
82
69
84
112
601
$
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8. Term Loan Agreement and Credit Agreement
On May 9, 2016, the Company entered into a Senior Secured Credit Facilities Credit Agreement for a term loan (the “Term Loan Agreement”). Under the
Term Loan Agreement, the Company borrowed and received $50 million in aggregate principal amount pursuant to a five-year term loan (the “Term Loan”). The
borrowings under the Term Loan Agreement are secured by a lien on substantially all of the assets of the Company, including a pledge of the stock of certain of its
wholly-owned subsidiaries.
Borrowings under the Term Loan Agreement must be repaid quarterly in the following manner: 2.5% of the initial aggregate borrowings are due and payable
each quarter for the first loan year and 5.0% of the initial aggregate borrowings are due and payable each quarter during each subsequent loan year. At maturity in
May 2021, any remaining amounts outstanding under the Term Loan Agreement will be due and payable.
Installment payments on the principal by year and amounts included in the Company’s Consolidated Balance Sheet as of December 31, 2016 related to the
Term Loan Agreement are as follows:
Years Ending December 31:
2017
2018
2019
2020
2021
Total principal on term loan
Unamortized debt issuance costs
Carrying amount of term loan
Less: current portion of term loan, net of $93 in unamortized debt issuance costs
Long-term portion of term loan, net of $214 in unamortized debt issuance costs
6,250
10,000
10,000
10,000
2,500
38,750
(307)
38,443
(6,157)
$32,286
The Term Loan Agreement requires the Company to maintain compliance with certain covenants, including leverage and fixed charge coverage ratio
covenants. At December 31, 2016, the Company was in compliance with all covenants under the Term Loan Agreement.
At the Company’s option, the Term Loan Agreement bears interest at either an annual rate of 1.50% plus the higher of (a) the Prime Rate in effect on such
day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%, or the London Interbank Offered Rate (“LIBOR”) plus 2.50%. The applicable
interest rate was 3.12% at December 31, 2016, representing LIBOR plus the applicable margin of 2.50%. Interest expense under the Term Loan Agreement was
$1.1 million in 2016, which includes non-cash interest expense of $60 related to the amortization of deferred issuance costs. During 2016, the Company made
principal payments totaling $11.3 million which included a $10.0 million pre-payment in excess of the contractual amounts due.
Borrowings under the Term Loan Agreement may be prepaid by the Company at its option without penalty and must be repaid upon the occurrence of
certain events, including certain events of default.
The Company paid a one-time upfront administration and arrangement fee on the closing date. Thereafter, a non-refundable fee will be due and payable on
each anniversary of the effective date of the Term Loan Agreement. Total debt issuance costs paid in relation to the Term Loan Agreement were approximately
$0.4 million. The costs were recorded as a direct deduction from the carrying amount of the Term Loan and amortized as interest expense over the life of the Term
Loan Agreement on a straight-line basis, which approximates the effective interest method.
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The Company used a portion of the proceeds from the Term Loan to fund a tender offer (the “Tender Offer”) to purchase up to 8.0 million of its shares of
common stock, which commenced on May 10, 2016 and was concluded on June 8, 2016 (see Note 11). The Company intends to use the remaining proceeds to fund
stock repurchases pursuant to its Stock Repurchase Program (see Note 11), as well as for general corporate purposes.
As of December 31, 2015, the Company had a $5.0 million Revolving Credit Facility (the “Prior Credit Agreement”), which was a discretionary $5.0 million
demand revolving line. There were no financial covenant requirements and no unused line fees under the Prior Credit Agreement, and there were no outstanding
balances under the Prior Credit Agreement at December 31, 2015. The Prior Credit Agreement was terminated concurrent with the establishment of the Term Loan
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 December 2021.
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 $4.4 million, $3.9 million and $4.1 million for the years ended December 31, 2016, 2015 and 2014,
respectively.
Future minimum lease payments under the Company’s noncancelable operating leases at December 31, 2016 are as follows:
Years Ending December 31:
2017
2018
2019
2020
2021
Thereafter
Minimum
Lease
Payments
4,802
4,982
4,917
972
385
—
$ 16,058
Net Worth Tax Contingency
In late March 2010, the Company received a letter from the Department of Revenue of the Commonwealth of Massachusetts (the “MA DOR”) requesting
documentation demonstrating that TSC had been classified by the
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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
would 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, 2016 and
2015, 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 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 three to four year period. Stock options granted under the
2007 Plan expire no later than ten years after the grant date. Additionally, beginning with awards made in August 2015, the Company has the option to direct a net
issuance of shares for satisfaction of tax liability with respect to vesting of awards and delivery of shares. Prior to August 2015, this choice of settlement method
was solely at the discretion of the award recipient.
The Company has reserved for issuance an aggregate of 2,911,667 shares of common stock under the 2007 Plan 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
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also will be available for future awards. To date, 8,224,334 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, 2016, a total of 3,623,283 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
2016
46%
6 years
1.90%
— %
3.91
$
Years Ended December 31,
2015
47%
6 years
1.67%
— %
3.72
$
2014
78%
6 years
1.62%
— %
7.22
$
The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period
equal to the expected life of the option. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a
zero coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying
cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture
rate in determining the expense recorded in each period.
A summary of the stock option activity under the Company’s stock option plans for the year ended December 31, 2016 is presented below:
Options outstanding at December 31, 2015
Granted
Exercised
Forfeited
Canceled
Options outstanding at December 31, 2016
Options exercisable at December 31, 2016
Options vested or expected to vest at December 31, 2016
Weighted-
Average
Exercise
Price Per
Share
$
$
$
$
7.97
8.49
7.12
7.36
7.50
9.42
9.42
9.42
Options
Outstanding
2,922,736
10,000
(701,947)
(26,642)
(1,342,767)
861,380
861,380
861,380
Weighted-
Average
Remaining
Contractual
Term
in Years
Aggregate
Intrinsic
Value
2.23
2.23
2.23
$
$
$
1,296
1,296
1,296
During the years ended December 31, 2016, 2015 and 2014, 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 $1.9 million, $1.7 million and $4.2 million, respectively, and the total
amount of cash received by the Company from exercise of these options was $4.2 million, $2.8 million and $4.8 million, respectively.
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Restricted Stock Unit Awards
Restricted stock unit 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 unit award activity under the 2007 Plan for the year ended December 31, 2016 is presented below:
Nonvested outstanding at December 31, 2015
Granted
Vested
Forfeited
Nonvested outstanding at December 31, 2016
Weighted-
Average
Grant Date
Fair Value
Per Share
6.93
$
9.05
6.28
5.96
8.54
$
Aggregate
Intrinsic
Value
$ 13,996
Shares
1,987,894
901,013
(671,909)
(576,208)
1,640,790
The total grant-date fair value of restricted stock unit awards that vested during the years ended December 31, 2016, 2015 and 2014 was $7.4 million, $7.2
million and $5.7 million, respectively.
As of December 31, 2016, there was $11.5 million of total unrecognized compensation expense related to stock options and restricted stock unit awards
which is expected to be recognized over a weighted average period of 1.9 years.
11. Stockholders’ Equity
Tender Offer
On May 10, 2016, the Company commenced a Tender Offer to purchase up to 8.0 million shares of its common stock, representing approximately 24.8% of
the shares of TechTarget’s common stock issued and outstanding at that time, at a price of $7.75 per share.
The Tender Offer expired on June 8, 2016. In accordance with the terms of the tender offer, the Company accepted for purchase 5,237,843 shares of its
common stock for a purchase price of $7.75 per share, or a total of $40.6 million. Repurchased shares were recorded under the cost method and are reflected as
treasury stock in the accompanying Consolidated Balance Sheets. The total cost of the Tender Offer was $40.8 million, which included approximately $0.2 million
in costs directly attributable to the purchase of shares pursuant to the Tender Offer. In connection with the tender offer, TCV V, L.P., TCV Member Fund, L.P.
(along with TCV V, L.P., referred to as the “TCV Funds”) and TCV Management 2004, L.L.C. (“TCM 2004”), each a related party, collectively tendered
3,379,249 shares of the Company’s common stock in the aggregate. Jay Hoag, a member of the Company’s board of directors at the time of the tender offer, was
also a member of the general partner of the TCV Funds and a member of TCM 2004, which at the time was estimated to hold more than 5% of the voting securities
of the Company. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the tender offer. Roger Marino, a member of the
Company’s board of directors, indirectly controls shares in Rogram LLC.
Common Stock Repurchase Programs
In June 2016, the Company announced that the Board had authorized a $20 million stock repurchase program (the “June 2016 Repurchase Program”),
whereby the Company is authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions at
prices and in the manner that may be determined by the Board. During 2016, the Company repurchased 980,329 shares of common stock, respectively, for an
aggregate purchase price of $8.0 million pursuant to the June 2016 Repurchase Program.
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In February 2016, the Company announced that the Board had authorized a $20 million stock repurchase program (the “February 2016 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. The February 2016 Repurchase Program was canceled on May 3, 2016 in connection with the Tender Offer noted above. The Company did not
repurchase any shares of common stock pursuant to the February 2016 Repurchase Program.
In August 2014, the Company announced that the Board had authorized a $20 million stock repurchase program (the “2014 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. During 2015, the Company repurchased 1,671,687
shares of common stock for an aggregate purchase price of $15 million pursuant to the 2014 Repurchase Program. The 2014 Repurchase Program expired on
December 31, 2015.
Repurchased shares are recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All
repurchased shares were funded with cash on hand or proceeds from the Term Loan Agreement (see Note 8).
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
approximately $0.5 million of 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.
Reserved Common Stock
As of December 31, 2016, the Company has reserved 6,321,704 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.
12. Income Taxes
Income before provision for income taxes was as follows:
U.S.
Foreign
Income before income taxes
88
Years Ended December 31,
2016
$3,351
1,666
$5,017
2015
$11,040
881
11,921
2014
$6,071
1,055
$7,126
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The income tax provision for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Years Ended December 31,
2016
2015
2014
$1,627
(569)
415
1,473
1,592
(21)
(446)
1,125
$2,598
$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
The income tax provision for the years ended December 31, 2016, 2015 and 2014 differs from the amounts computed by applying the statutory federal
income tax rate to the consolidated income before provision for income taxes as follows:
Provision computed at statutory rate
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
Subsidiary earnings taxed in the US
True-up of prior year returns
Penalties and interest
Other
Provision for income taxes
89
Years Ended December 31,
2016
$1,757
2015
$4,172
2014
$2,477
(146)
(21)
315
67
738
(380)
1
—
253
11
—
3
$2,598
(181)
(6)
(430)
14
408
573
9
—
—
197
—
(21)
$4,735
(144)
—
(479)
104
492
337
56
188
—
—
15
(1)
$3,045
Table of Contents
Significant components of the Company’s net deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
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
Depreciation
Total deferred tax liabilities
Net deferred tax (liability) assets
As reported:
Non-current deferred tax assets
Non-current deferred tax liabilities
As of December 31,
2016
2015
$
308
187
1,721
1,656
809
4,681
(443)
4,238
(1,865)
(2,434)
(4,299)
(61)
$
$
$
139
200
$
341
78
1,557
5,493
862
8,331
(528)
7,803
(1,496)
(2,679)
(4,175)
$ 3,628
$ 4,210
$
582
In evaluating the ability to realize the net deferred tax asset, the Company considers all available evidence, both positive and negative, including past
operating results, the existence of cumulative losses in the most recent fiscal years, tax planning strategies that are prudent and feasible, and forecasts of future
taxable income. In considering sources of future taxable income, the Company makes certain assumptions and judgments which are based on the plans and
estimates used to manage the underlying business of the Company. Changes in the Company’s assumptions and estimates may materially impact income tax
expense for the period. The valuation allowance of $0.4 million and $0.5 million at December 31, 2016 and 2015, 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 $(85), $(686) and $56 during the years ended December 31, 2016, 2015 and 2014, 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, 2016, the Company has a federal NOL carryforward of approximately $36, which may be used to offset future
taxable income. The federal NOL carryforward will expire in 2033.
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 Company had no unrecognized tax benefits at December 31, 2016. It is not expected that the amount of unrecognized tax benefits will change
significantly within the next twelve months.
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A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2016, 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
2016
$ 184
(188)
—
4
$ —
2015
$ 672
(160)
(336)
8
$ 184
2014
$657
—
—
15
$672
In late March 2010, the Company received a letter from the Massachusetts Department of Revenue (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 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 2013, 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, 2016, the Company had state NOL carryforwards of approximately $1.3 million, which may be used to offset future taxable income and
expire at various dates through 2033. The Company has foreign NOL carryforwards of $1.0 million, which may be used to offset future taxable income in foreign
jurisdictions until they expire at various dates through 2021. The deferred tax assets relating to the foreign 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 and foreign net operating loss carryforwards and
the corresponding valuation allowance previously recognized. The Company determined the foreign NOLs were not more likely than not to be realized based on
projections of future taxable income China and Hong Kong.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $5.1 million as of December 31, 2016. 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.
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Geographic Data
Net sales to unaffiliated customers by geographic area* were as follows**:
U.S.
International
Total
Long-lived assets*** by geographic area were as follows:
U.S.
International
Total
2016
$ 79,535
27,090
$ 106,625
Years Ended December 31,
2015
$ 85,284
26,542
$ 111,826
$
2014
81,921
24,282
$ 106,203
Years Ended December 31,
2016
98,330
$
4,972
$ 103,302
2015
99,091
$
4,980
$ 104,071
*
**
***
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
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, $0.9 million and $0.7 million to the Plan for the years ended December 31, 2016, 2015 and 2014, 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 (loss)
Net income (loss) per common share:
Basic
Diluted
2016
2015
For the Three Months Ended
Mar. 31
$ 25,031
7,193
17,838
17,600
238
(48)
$
Sep. 30
Jun. 30
$ 29,174 $ 25,750
7,612
18,138
17,589
549
(22)
7,604
21,570
17,266
4,304
$ 2,399 $
Sep. 30
Dec. 31 Mar. 31
Dec. 31
Jun. 30
$ 26,670 $ 23,658 $ 29,757 $ 29,007 $ 29,404
7,811
21,593
17,252
4,341
1,969
6,984
16,674
16,518
156
347 $
7,512
21,495
18,042
3,453
2,041 $
7,596
22,161
17,941
4,220
2,829 $
7,808
18,862
17,162
1,700
90 $
$
$
$
(0.00)
(0.00)
$
$
0.08 $
0.07 $
(0.00)
(0.00)
$
$
0.00 $
0.00 $
0.01 $
0.01 $
0.09 $
0.08 $
0.06 $
0.06 $
0.06
0.06
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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 Exchange Act 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, 2016, 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, 2016. 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 2016 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 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.
93
Table of Contents
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria for effective control over
financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, 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 control over financial reporting as of December 31, 2016, which is included herein.
94
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, 2016, 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, 2016, 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, 2016 and 2015, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 10, 2017 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Boston, Massachusetts
March 10, 2017
95
Table of Contents
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Incorporated by reference from the information in the Company’s proxy statement for the 2017 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 2017 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 2017 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 2017 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 2017 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, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
96
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.
Item 16.
Form 10-K Summary
None.
97
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 10, 2017
By:
/s/ Michael Cotoia
Michael Cotoia
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
/s/ Michael Cotoia
Michael Cotoia
/s/ Daniel Noreck
Daniel Noreck
/s/ Robert D. Burke
Robert D. Burke
/s/ Leonard Forman
Leonard Forman
/s/ Bruce Levenson
Bruce Levenson
/s/ Roger M. Marino
Roger M. Marino
Chief Executive Officer and Director (Principal executive officer)
Title
Chief Financial Officer and Treasurer (Principal financial and
accounting officer)
Director
Director
Director
Director
98
Date
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
Table of Contents
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
Description
Articles of Incorporation and By-Laws
Fourth Amended and Restated Certificate of Incorporation of the Registrant
Amended and Restated Bylaws of the Registrant
Instruments Defining the Rights of Security Holders
Form or
Schedule
Exhibit No.
Filing Date
with SEC
SEC File
Number
Incorporated by Reference to
10-Q
S-1/A
3.1
11/13/2007
001-33472
3.3
3/20/2007
333-140503
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
S-1
10.1
2/07/2007
333-140503
S-1/A
10.2
5/15/2007
333-140503
2007 Stock Option and Incentive Plan
S-1/A
10.3
4/20/2007
333-140503
Form of Incentive Stock Option Agreement under the 2007 Stock Option and
Incentive Plan
Form of Non-Qualified Stock Option Agreement under the 2007 Stock Option
and Incentive Plan
S-1/A
S-1/A
10.4
4/20/2007
333-140503
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
10.12#
1999 Stock Option Plan
10.13#
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option
Plan (for grants prior to September 27, 2006)
99
S-1/A
10.6
4/20/2007
333-140503
10-K
10-K
10-K
10-K
S-1
S-1
10.8
3/31/2008
001-33472
10.9
3/31/2008
001-33472
10.10
3/31/2008
001-33472
10.13
3/31/2008
001-33472
10.8
2/07/2007
333-140503
10.9
2/07/2007
333-140503
Table of Contents
Exhibit
Number
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
Description
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)
Form of Nonqualified Stock Option Grant Agreement under the 1999 Stock
Option Plan
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
100
Incorporated by Reference to
Form or
Schedule
S-1
Exhibit No.
10.10
Filing Date
with SEC
2/07/2007
SEC File
Number
333-140503
S-1/A
10.10.1
5/01/2007
333-140503
S-1
10-K
10-K
10-K
8-K
8-K
10-K
8-K
10-K
10-K
8-K
8-K
10.11
2/07/2007
333-140503
10.25
3/31/2008
001-33472
10.26
3/31/2008
001-33472
10.28
3/31/2008
001-33472
10.1
8/7/2009
001-33472
10.1
11/22/2010
001-33472
10.33
3/16/2011
001-33472
10.1
1/10/2012
001-33472
10.36
3/15/2012
001-33472
10.37
3/15/2012
001-33472
10.1
5/8/2012
001-33472
10.1
12/9/14
001-33472
Incorporated by Reference to
Filing Date
with SEC
11/9/2015
SEC File
Number
001-33472
Exhibit No.
10.1
10.2
5/9/2016
001-33472
10.3
5/9/2016
001-33472
10.1
5/9/2016
001-33472
10.1
12/19/2016
001-33472
Table of Contents
Exhibit
Number
10.28
10.29#
10.30#
10.31
10.32#
Description
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
Employment Agreement between the Registrant and Michael Cotoia (dated
May 3, 2016)
Employment Agreement between the Registrant and Greg Strakosch (dated
May 3, 2016)
Senior Secured Credit Facilities Credit Agreement between Registrant and
Silicon Valley Bank dated May 9, 2016
Employment Agreement between the Registrant and Daniel T. Noreck (dated
December 19, 2016)
Form or
Schedule
10-Q
8-K
8-K
8-K
8-K
10.33#*
2017 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)
*
Filed herewith.
101
Table of Contents
#
(1)
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, 2016 and December 31, 2015, (ii) Consolidated Statements of Comprehensive Income for the Years ended December 31,
2016, December 31, 2015 and December 31, 2014, (iii) Consolidated Statements of Stockholders’ Equity for the Years ended December 31,
2016, December 31, 2015 and December 31, 2014, (iv) Consolidated Statements of Cash Flows for the Years ended December 31, 2016, December 31, 2015
and December 31, 2014, and (v) Notes to Consolidated Financial Statements.
102
TECH TARGET, INC.
2017 EXECUTIVE INCENTIVE BONUS PLAN
Exhibit 10.33
1.
Purpose
This 2017 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 2017, 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 2017 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.
6.
Amendment and Termination
The Company reserves the right to amend or terminate the Plan at any time in its sole discretion.
2
TechTarget, Inc.
List of Subsidiaries
Subsidiary Legal Name
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
Exhibit 21.1
Employer
ID Number % Owned
20-1921630
NA
NA
NA
NA
NA
NA
NA
100%
100%
100%
100%
100%
100%
100%
100%
State/Country
Incorporated
MA
United Kingdom
Hong Kong
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 10, 2017, 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 10, 2017
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, Michael Cotoia, 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 10, 2017
/s/ Michael Cotoia
Michael Cotoia
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, Daniel Noreck, 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 10, 2017
/s/ Daniel Noreck
Daniel Noreck
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 Michael Cotoia and Daniel Noreck 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, 2016 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 10, 2017
Date: March 10, 2017
By: /s/ Michael Cotoia
Michael Cotoia
Chief Executive Officer
By: /s/ Daniel Noreck
Daniel Noreck
Chief Financial Officer and Treasurer