UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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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, 2018
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)
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(b) of the Exchange Act:
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 every Interactive Data File required to be submitted 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 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 a smaller reporting company or an emerging growth company. See the
definitions of the "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
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☐
Accelerated Filer
Smaller reporting company
Emerging Growth Company
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☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☑
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $516.1 million as of June 30, 2018 (based on a closing price of
$28.40 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 27,756,336 shares of Common Stock, $0.001 par value per share, outstanding as of February 28, 2019.
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 2019 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, 2018.
TABLE OF CON TENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Exhibit Index
Item 16.
Form 10-K Summary
Signatures
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3
16
29
29
29
30
33
35
53
54
79
79
81
81
81
81
81
81
82
83
85
86
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 forwa rd-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 53.
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 and business 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, networking, or business applications. IT and business professionals rely on us for key decision support information
tailored to their specific areas of responsibility.
We enable IT and business 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 and business professionals use to assist them in their pre-
purchase research: independent content provided by our professionals, vendor-generated content provided by our customers and member-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 20.0 million and 19.1 million registered members – our “audiences” – as of December 31, 2018 and 2017, respectively. While the
size of our registered member 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 member 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, in 2018, delivered
marketing and sales services programs to approximately 1,300 customers.
Please refer to the section below titled “Our Strategy” regarding our longer-term expansion plans and to Item 6, Selected Financial Data, for detailed
information about our revenues, net income, total assets and other financial results.
Business Trends
Our business is impacted by macro-economic conditions, including 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 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 ten major global 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 ( our largest 100 customers, excluding those companies we consider our ten major global 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.
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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 a 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.
Industry Background
IT and business 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:
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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 members 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 benefit as our customers 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 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 and business 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 and business professionals are required to continuously engage in research to stay abreast of the
latest developments that could benefit their companies.
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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 and business professionals are demanding specialized online content tailored to the specialized
sub-sectors of IT solutions that they must understand. As technology, vendors and IT and business 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 data driven insights to enable advanced demand-generating content marketing and targeted branding.
Our Solutions
IT and business 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 and business professionals who are
actively researching purchases in specific IT sectors. Our solution benefits from the following competitive advantages:
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Large and Growing Community of Registered Members. We had approximately 20.0 million registered members as of December 31, 2018. The
targeted nature of our member base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and
aligned with the IT vendors' specific products and services.
Strong Customer Relationships. We have developed a broad customer base. During 2018, we delivered marketing services programs for
approximately 1,300 IT vendors who are our customers.
Substantial Experience in Online Content Creation and Marketing. We have over 19 years of experience in developing our online information
content, with a focus on providing targeted information to IT and business 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
and business 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 and Business 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 and business professionals, who rely on these websites because of their specificity and depth of content.
Favorable Search Engine Rankings. When members 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, we are able 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 and business professionals and IT vendors. We facilitate IT and business 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 and business professionals and IT vendors in the following ways:
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Benefits to IT and Business Professionals
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Provide Access to Integrated, Sector-Specific Content. Our websites provide IT and business 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 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, depth, and accessibility of our
content offerings enable IT and business professionals to make more informed purchases.
Increase Efficiency of Purchasing Decisions. By accessing targeted and specialized information, IT and business 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 and business professionals’ information consumption 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
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Provide 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 and business professional members 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.
Target 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.
Generate Measurable Results. Our targeted online content offerings enable us to generate and collect valuable business information about each
member and his or her technology preferences. As registered members 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.
Maximize 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 and business 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, IT and business professionals are 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 and business professionals with IT vendors in the sectors and sub-sectors that we serve, the purchasing intent insight analytics and data services our
content and member 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
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•
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develop our existing product offe rings 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, annual or longer 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 members 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 members 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 2018, approximately
32% of our 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 in annual revenues; and later stage revenue sites, typically generating greater than $5 million in annual
revenues. During 2018, we acquired substantially all the assets of a company with complimentary data skills for less than $1 million. 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 and business professionals who are making
corporate purchase decisions. At critical stages of the purchase decision process, these content offerings through different channels meet IT and business
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 the IT vendors who are our customers:
Audience: Market Segment Sites
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Market Categories
Based upon the logical clustering of our members’ 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 market categories. Each
of these marketing categories services a wide range of IT vendor sectors and sub-sectors and is driven by the key areas of IT and business 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, 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.
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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 gro wn in importance, IT networking
professionals have increasingly focused their investments in such technologies as VoIP, wireless and mobile computing, social networking and
collaboration, application performance, data center fabrics, convergence, software- defined networking (“SDN”) and providing cloud services. Our
online properties
in this sector, which include SearchNetworking.com, SearchEnterpriseWAN.com, SearchUnifiedCommunications.com, SearchSDN.com and
SearchTelecom.com, aim to address the specialize d 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 (“SANs”) 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, and SearchDisasterRecovery.com, address IT and business 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 and business 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 sites such as SearchDataCenter.com, covering disaster recovery, power and cooling, mainframe and UNIX ® servers,
systems management, and server consolidation, 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.
SearchConvergedInfrastructure.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 and business professionals’
infrastructure responsibilities and purchasing focus. Our online properties in this sector include SearchWindowsServer.com, covering servers,
storage, and systems management; and SearchDomino.com, each targeted toward senior management for distributed computing environments. This
network of sites provides resources and advice to IT and business 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.
CIO/IT Strategy. Our CIO/IT Strategy sites provide 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
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implications of these issues and technologies on their businesses. Accordingly, our targeted infor mation 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 i n 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 category 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 ce nters,
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 market category 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 sites such as SearchCRM.com,
SearchSalesforce.com, SearchOracle.com, SearchSAP.com, SearchHRSoftware.com, SearchSQLServer and SearchERP.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. 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 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 too ls 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 interes t in microservices. Application integration, application testing and security, as well as internet and mobile applications are also key
areas of continuing focus for vendors and developers Our online properties in this sector include sites such as TheServe rSide.com, which hosts
independent communities of developers and architects, SearchSoftwareQuality.com, which offers content focused on application testing and quality
assurance, and SearchMicroservices.com, which serves 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.
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 and business
professionals have become more specialized, IT vendors have actively sought resellers with specific expertise in the vendors’ sub-sectors. Like IT
and business 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.
Product and Service Offerings
We use our 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.
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IT Deal Alert: Priority Engine ™. Priority Engine is a subscription service powered by our Activity Intelligence platform, which integrates with
customer relationship management and marketing automation platforms from salesforce.com, Marketo, Eloqua, Pardot, and Integrate. The service
delivers information that enables marketers and sales personnel to identify and understand accounts and individuals actively researching new
technology purchases and then to engage those active prospects within the organizations that are relevant to the purchase. We sell this service in
approximately 200 technology-specific segments which our customers use for demand generation, account-based marketing and other marketing and
sales activities. Priority Engine is also available with specific geographic focus, bringing the total available segments to over 300.
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 110 technology-specific segments.
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 into one-time offerings 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
and business 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 on-demand quarterly, bi-annual, and annual reports.
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Demand Solutions. Our offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to gen
erate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers. This allows IT
vendors to maximize ROI by capturing sales leads from the distribution and promotion of content to our audience of IT and business professionals.
Our demand solutions offerings may 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 members 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 members 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 and business professionals actively
researching information related to their products and services. We leverage our Activity Intelligence 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 and business 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 specific audiences who are actively researching purchasing decisions. 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, longer-term contracts covering various client needs across
approximately a year or longer. We have developed a broad customer base and delivered campaigns to approximately 1,300 companies in 2018. During 2018,
2017, and 2016, no single customer represented 10% or more of total revenues.
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 and business professionals. We organize the sales force by the sector-
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specific market categories that we operate and have a global accounts team that works with our largest customers. Addition ally, we organize certain individuals
into Customer Success Teams. Those teams facilitate the usage and renewal of certain of the Company’s products. 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, 2018, our sales and marketing staff c onsisted
of approximately 320 people. The majority of our sales staff and marketing staff are located in our Newton, Massachusetts , headquarters and our offices in San
Francisco, California , and London, England.
We pursue a variety of marketing initiatives designed to support our sales activities by building awareness of our brand to IT vendors and positioning
ourselves as a “thought leader” in ROI-based marketing. These initiatives include purchasing online 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 Member 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
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 an online backup storage solution. The data
is also copied to an off-site online 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 members 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 and business 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 and business professionals, and the quality and quantity of sales leads generated
for IT vendors. We also compete for the members who comprise our target audiences primarily with the media companies that produce content specifically for IT
and business 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 Aberdeen. In general marketing services, we
compete with list and lead providers of various types. As we continue to expand internationally, we expect to compete with many of the competitors mentioned
above, as well as with established media companies based in particular countries or geographical regions.
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Member 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 members 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
member can correct or change this information, including how a member can unsubscribe to our communications and those of our partners. Our privacy policy also
explains the circumstances under which we share a member's information and with whom. Members 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 members, we impose constraints that are consistent with our privacy policy on the customers to whom we
provide member 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 members 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 members.
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 member’s online activities in order to deliver advertising tailored to his or her interests) and to encourage industry self-regulation for public
content. Although the FTC excluded from the principles both “first-party” behavioral advertising and contextual advertising (each being the types of behavioral
targeting activities in which we are currently primarily engaged), with respect to other types of behavioral targeting that include the storage of more, and potentially
sensitive, data or that collects information outside of the “traditional Web site context” (such as through a mobile device or by an ISP), the FTC has stated that it
will continue to evaluate self-regulatory programs. Further, the FTC has indicated that it is considering regulations regarding behavioral targeting which may
include implementation of a more rigorous opt-in regime. An opt-in policy would prohibit businesses from collecting and using information obtained through
behavioral targeting activities from individuals who have not voluntarily consented. The FTC has also issued further clarifying guidance regarding consumer
privacy and data collection with a particular focus on the mobile environment. A few states have also introduced legislation that, if enacted, would restrict or
prohibit behavioral advertising within the state. In the absence of a federal law pre-empting their enforcement, such state legislation would likely have the practical
effect of regulating behavioral advertising nationwide because of the difficulties behind implementing state-specific policies or identifying the location of a
particular consumer.
Privacy. In addition, the European Union (“EU”) and its member states and Canada and California have laws, rules and/or regulations dealing with the
collection and use of personal information obtained from their citizens. Regulations have focused on, among other things, the collection, use, disclosure and
security of information that may be used to identify or that actually identifies an
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individual, such as an e-mail address, a name, or an IP address. Additionally, 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,” 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, 2018, we had 647 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.
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
Risks Relating to Our Business and Operations
The risks and uncertainties set forth below, as well as other risks and uncertainties described elsewhere in this Annual Report on Form 10-K including in
our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or
in other filings with the SEC, could materially and adversely affect our business, financial condition, operating results and the trading price of our common stock.
Additional risks and uncertainties that are not currently known to us or that are not currently believed by us to be material may also harm our business operations
and financial results. Because of the following risks and uncertainties, as well as other factors affecting our financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results
or trends in future periods.
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Because we depend on our ability to generate revenues from the sale and support of purch ase intent driven advertising campaigns, fluctuations in advertising
spending could have an adverse effect on our revenues and operating results.
The primary source of our revenues is the sale and support of purchase intent driven advertising campaigns to our customers. Any reduction in advertising
expenditures could have an adverse effect on the Company’s revenues and operating results. 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. Some of these factors include:
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variations in expenditures by advertisers due to budgetary constraints;
the cancellation or delay of projects by advertisers or by one or more significant customers;
the cyclical and discretionary nature of advertising spending;
the relocation of advertising expenditures to competitors or other media;
general global economic conditions and the availability of capital, 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, acts of terrorism and international or domestic political and economic unrest.
Because most 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 most of our customers 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, frequent new product introductions and enhancements and evolving domestic and international laws and regulations, particularly with respect to data
privacy and data protection. 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 continue to scrutinize their spending on advertising campaigns. Prior market downturns in the IT
industry have resulted in declines in advertising spending, which can cause longer sales cycles, deferral or delay of purchases by IT vendors and generally reduced
expenditures for advertising and related services. Our revenues and profitability depend on the overall demand for advertising services from our customers. We
believe that demand for our offerings has been in the past, and could be in the future, disproportionately affected by fluctuations, disruptions, instability or
downturns in the IT industry, which may cause customers and potential customers to exit the industry or delay, cancel, reduce or reallocate 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 marketing and 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 trend that we have seen in the past and that
may continue in the future;
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, leading to volume and price compression and loss of revenue
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 data driven product and service suite.
We sell a suite of data driven products and services called IT Deal Alert, which is based on our Activity Intelligence analytics. The IT Deal Alert suite
consists primarily of Priority Engine, Qualified Sales Opportunities and Deal Data. Our increase in revenues in the year ended December 31, 2018, compared to the
year ended December 31, 2017, was driven in part by an increase in sales of data driven products. We expect that IT Deal Alert, as well as the expansion of the
features in our IT Deal Alert product offerings, will be major components of our future growth. The failure of our data driven 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.
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In addition, competitors may develop a ser vice or application that is similar to our data driven product suite, which could also result in reduced sales for those
product offerings.
Our revenues are primarily derived from short-term contracts that may not be renewed.
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 from us, then we could experience a rapid
decline in our revenues over a relatively short period of time. Any factors that limit the amount our customers are willing to and do spend on marketing or
advertising with us could have a material adverse effect on our business.
If we are unable to deliver content and services that attract and retain a critical mass of members, 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 members, as well as our ability to
garner a critical mass of members of our websites. Our member base is primarily comprised of corporate IT and business 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 generate engagement
with our websites or continue to attract and retain a critical mass of members 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 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 members;
attract and retain qualified editors, writers, freelancers 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 member base through the deployment of targeted and compelling content, our ability to retain and
attract customers may be affected or we may be required to obtain licensed content which may not be at reasonable prices, which could in turn have an adverse
effect on our revenues, and operating results.
We depend upon internet search engines to attract a significant portion of visitors to our websites. These visitors can become members, 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 could
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. A critical
factor in attracting members 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 be detrimental and cause our websites to be listed less prominently in unpaid search results or not at all, 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 operating results.
Further, we use search engine optimization, or SEO, to enhance the visibility of our websites and optimize ranking in search engine results. Our ability to
successfully manage our SEO efforts across our owned and operated websites depends on our ability to
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adapt and respond to changes in search engine algorithms and methodologies and changes in search query trends. If we fail to successfully manage our SEO
strategy, our owned and operated websites may receive less favorable plac ement in organic or paid listings, which would reduce the number of visitors to our sites,
decrease conversion rates and repeat business and have a detrimental effect our ability to generate revenue.
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.
The Company derives a significant portion of its revenues from customers with billing addresses outside of the U.S (26%). For the year ended December 31,
2018 approximately 32% of our online revenues were derived from international geo-targeted campaigns, which are campaigns that are targeted at members who
reside outside of North America. We have offices in the United Kingdom, France, Germany, Singapore and Australia. We also publish websites in Spanish, French,
German, Portuguese and Chinese, targeting members 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;
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 privacy and data protection regulation, which may vary by country and for which there may be little conflicting or no guidance;
more restrictive website licensing and hosting requirements, which may result in our websites being blocked, may require changes to how we operate
our websites, or may involve regulatory or enforcement actions against us that could be harmful to our business;
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;
difficulties following changes in local business operations or structure;
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.
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The United Kingdom’s vote to with draw from the EU in accordance with the national referendum held on June 23, 2016 (“Brexit”) could adversely affect
us. In particular, our European and Middle East operations are based out of the United Kingdom. We employ approximately 60 % of our non-U.S. workforce in the
United Kingdom (10% of our overall workforce), and we generate approximately 12% 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 March 2017, the United Kingdom’s government initiated the exit process under Article 50 of the Lisbon Treaty, commencing a period of up to two
years for the United Kingdom and other EU member states to negotiate the terms of the withdrawal. The effects of Brexit will depend on any agreements the United
Kingdom makes to retain access to the European marketplace, either during a transitional period or more permanently. The measures could potentially disrupt our
operations in the United Kingdom and the EU markets we serve and may cause us to lose customers and employees. Additionally, disruptions and uncertainty
caused by Brexit may cause our customers to closely monitor their costs and reduce their spending budgets on our services . There can be no assurance that any or
al l of these events will not have a material adverse effect on our business operating results 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.
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 and business 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 data driven products and services remain
effective and interesting to our members, 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 members and the customers that seek to reach those members, 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 member base. We intend to continue to build existing brands
and introduce new brands that will resonate with our targeted audiences. In order to promote our brands, we may find it necessary to increase our marketing budget,
hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining brand loyalty among our
customers. If we fail to promote and maintain our brands effectively, or incur excessive expenses attempting to promote and maintain our brands, our business and
financial results may suffer.
If we do not retain our key personnel, our ability to execute our business strategy will be adversely affected.
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our executive officers and key
management. Our management team has significant industry experience and would be difficult to replace. These individuals possess sales, marketing, financial and
administrative skills that are critical to the operation of our business. The competition for these employees is intense. The loss of the services of one or more of our
key personnel could have a material adverse effect on our business and operating results.
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We may not be able to attract, hire and retain qualifie d 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 and customer retentions force. This dependence involves a number of challenges, including the need to hire, integrate, motivate and retain additional
sales and sales support personnel and train new sales personnel, many of whom lack sales experience when they are hired, as well as increased 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 members, 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 customers and the market
generally;
potential litigation resulting from our business combinations or acquisition activities; and
potential unknown liabilities associated with the acquired businesses.
Our inability to integrate any acquired business successfully, or the failure to achieve any expected synergies, could result in increased expenses and a
reduction in expected revenues or revenue growth. As a result, our revenues, results of operations or stock price could fluctuate or decline. In addition, we may not
be able to identify or successfully complete acquisitions, which could impact our ability to expand into complementary sectors in the future.
General domestic and global economic, business or industry conditions and financial market instability may adversely affect our business, as well as our ability
to forecast financial results.
The U.S. and international economies have experienced inconsistent, unpredictable growth and a certain degree of instability, magnified at times by factors
including changes in the availability of credit, volatile business and consumer confidence and unemployment. These and other macro‑economic conditions have
contributed to unpredictable changes in the global economy and expectations of future global economic growth. If the economic climate in the U.S. and abroad
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, tariffs, declines in stock markets, or other
factors affecting economic conditions generally. These changes may negatively affect the sales of our offerings, increase exposure to losses from bad debts,
increase the cost and decrease the availability of financing, or increase the risk of loss on investments. Any recent growth we have experienced internationally
would be negatively affected by any future global downturn.
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Risks Related to Data Pr ivacy, 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.
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 members 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 members an opportunity
to post comments and opinions that are not moderated. Some of this member-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 customer 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 while imposing significant compliance costs on the Company.
We use e-mail as a significant means of communicating with our members. 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
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and regulations are interpreted and/or amended or modified to impose additional restrictions on our ability to send e-mail to our members or potential members, 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 “spa m.” 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 members or potential members who maintain e-mail accounts with these
internet service provid ers or who use these software programs. If we are unable to communicate by e-mail with our members and potential members as a result of
legislation, blockage or otherwise, our business, operating results and financial condition could be harmed.
We collect information from our members who register on our websites, co-branded sites, or for services, respond to surveys or, in some cases, view our
content. Subject to each member’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 members of services that they have
indicated may be of interest to them. We may also share this information with our customers for members 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 members 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, such as the California Consumer Privacy Act, could be enacted or applied to us
or our customers. Such laws or regulations could impair our ability to collect member information that helps us to provide more targeted content to our members
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 member. In the event of additional legislation in this area, our
ability to effectively target our members 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, processing, transfer, use, disclosure and security of information that may be used to
identify or that actually identifies an individual, such as a name, e-mail address or online identifier (IP address). The General Data Protection Regulation (“GDPR”)
was approved by the EU Parliament on April 14, 2016 and became effective on May 25, 2018. GDPR replaces the 1995 Data Protection Directive and was
designed to, among other things, harmonize disparate data privacy laws found across Europe. GDPR implemented more rigorous principles relating to the data
privacy and data protection, including, among other things, enhanced disclosure requirements regarding how personal information is to obtained, used, and shared,
limitations on the purpose and storage of personal information, mandatory data breach notification requirements and enhanced standards for data controllers to
demonstrate that they have obtained valid consent for certain data processing activities. Its application and scope are extensive and penalties for non-compliance are
significant, including fines of up to 20 million Euros or 4% of total worldwide revenue. In the event the Company is deemed not in compliance with GDPR, or fails
to maintain compliance, then the Company would be exposed to material damages, costs and/or fines if an EU regulator or EU resident commenced an action.
Failure to comply or maintain compliance could cause considerable harm to us and our reputation (including requiring notification to customers, regulators, and/or
members), cause a loss of confidence in our services, and deter current and potential customers from using our services.
On September 20, 2018, the presidency of the council of the EU released a revised draft of the pending Proposal for Regulation on Privacy and Electronic
Communications (“ePrivacy Regulation”) which will replace the ePrivacy Directive and is intended to align with the overall EU data privacy and protection
framework, including GDPR. The ePrivacy Regulation could disrupt the Company’s ability to use or transfer data or to market and sell its products and services,
which could have a material adverse effect on our business, financial condition, and operating results.
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Further, our customers may implement compliance measures that do not align with our services, which could limit the scope and delivery of services we are
able to provide. Our customers may also require us to take on additional privacy and security obligations, causing us to incur potential disruption and expense
related to our business processes. If our policies an d practices, or those of our customers, are, or are perceived to be, insufficient or if our members and customers
have concerns regarding our data privacy and data protection practices, particularly with respect to GDPR or the pending ePrivacy Regulation, then we could be
subject to enforcement actions or investigations by regulators or lawsuits by private parties, member engagement could decline and our business could be
negatively impacted.
For certain data transfers and processing activities between the EU and the U.S., many companies previously relied on the Department of Commerce Safe
Harbor Principles (“Safe Harbor”) and self-certification process in order to lawfully transfer and process the personal data of people in the EU in a manner that the
EU 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 EU Privacy
Shield”). On July 12, 2016, the European Commission deemed the EU Privacy Shield adequate to enable data transfers of personal data from the EU to the U.S.
Similarly, a new Swiss-U.S. Privacy Shield (the “Swiss Privacy Shield”) was announced in January 2017, replacing the former Swiss-U.S. Safe Harbor, enabling
data transfers of personal data from Switzerland to the U.S. The Company self-certified to the EU Privacy Shield and Swiss Privacy Shield on February 10, 2017
and April 2, 2018, respectively. In order to continue receiving personal data from the United Kingdom in reliance on the EU Privacy Shield following Brexit, the
Company may be required to further update its EU Privacy Shield commitments.
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 members’ 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 member
information that helps us provide more targeted marketing content to our members. 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 members 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 for us, result in adverse publicity, increase our future compliance costs, make our products and services less attractive to our members and
customers, or cause us to change or limit our business practices, and materially affect our business and operating results. Further, any failure on our part to comply
with any relevant laws or regulations may subject us to significant civil or criminal liabilities.
Increased exposure from loss of personal, confidential, and/or proprietary information due to our cybersecurity systems or the systems of our customers,
vendors, or partners being breached could cause us to incur significant legal and financial exposure and liability, and materially adversely effect our business,
operating results and reputation.
We currently retain personal confidential, and/or proprietary information relating to our members, employees, and customers in secure database servers.
Although we observe security measures throughout our operations, we experience cyber-attacks targeting our database servers and information systems. Cyber-
attacks may involve viruses, malware, distributed denial-of-service attacks, phishing or other forms of social engineering, and other methods seeking to gain
unlawful access. W e may not be able to prevent unauthorized access to these secure database servers, and information systems as a result of these third-party
actions, including intentional misconduct by criminal organizations and hackers or as a result of employee error, malfeasance or otherwise. A security breach could
result in intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, the misappropriation of personal, confidential
and/or proprietary information, disruptions in our service, and in the unauthorized access to our customers’ data or our data, including intellectual property,
business opportunity, and other confidential business information. Additionally, third parties may attempt to fraudulently induce our employees, vendors, or
customers into disclosing access credentials such as user names, passwords or keys in order to gain access to our database servers and information systems.
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Our online networks could also be affected by cyber-attacks, and we could inadvertently transmit viruses across our networks to our members 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 members from accessing our networks .
We may be required to expend significant capital and other resources to protect cyber-attacks. 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 members or other third parties. Providing
unimpeded access to our online networks is critical to servicing our customers and providing superior customer service. 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 significantly.
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 customers, our customers’ 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 members, 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 members. System interruptions or delays that result in the unavailability of internet sites or slower response times for members would
reduce the number of advertising impressions and leads delivered. This could reduce our revenues as the attractiveness of our sites to members 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 members 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.
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Our business d epends on continued and unimpeded access to the internet by us and our members. 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.
Our products and services depend on the ability of our members 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 member 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 members to provide our offerings. On December 14, 2017, the Federal
Communications Commission voted to repeal the net neutrality rules which were intended, in part, to prevent network operators from discriminating against legal
traffic that traverses their networks. It is unclear whether or if such a repeal will be subject to challenge or preemption if the U.S. Congress passes new laws
regarding net neutrality. 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 increased costs, and could impair our ability to attract new customers, 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.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness, including our term loan, may adversely affect our financial
and operational flexibility.
In addition to financial covenants, other covenants in our loan and credit agreement and the other agreements governing term loan facility impose significant
operating and financial restrictions on us and certain of our subsidiaries. Such covenants include, among other things, limitations on: (i) dispositions; (ii) mergers,
consolidations and acquisitions; (iii) indebtedness; (iv) encumbrances; (v) dividends and other distributions, and stock repurchases; (vi) loans and other
investments; (vii) transactions
26
with affiliates; (viii) subordinated debt; and (ix) capital expenditures. Future debt agreements we enter into may include similar provisions.
These Covenants may also make it more difficult or discourage a takeover of us, whether favored or opposed by our management and/or our Board of
Directors.
Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to
seek waivers or amendments of covenants or alternative sources of financing, or to reduce expenditures. We cannot guarantee that such waivers, amendments or
alternative financing could be obtained or, if obtained, would be on terms acceptable to us.
A breach of any of the covenants or restrictions contained in these agreements could result in an event of default. Such a default could allow our debt
holders to accelerate repayment of the related debt, and/or to declare all borrowings outstanding under these agreements to be due and payable. If our debt is
accelerated, our assets may not be sufficient to repay such debt.
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 $93.7 million of goodwill and $0.8 million of net intangible assets as of December 31, 2018. 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, 2018.
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, have 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
27
market and in the market price of a company’s securities. Such litigation, i f 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 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 11.7 million shares of our common stock, which represents 42% of our
outstanding shares as of December 31, 2018. 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 42% of our outstanding common stock as of December 31,
2018. 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.
28
Item 1B.
Unresolve d Staff Comments
None.
Item 2.
Properties
As of December 31, 2018, we are leasing approximately 74,000 of office space for our global headquarters in Newton, Massachusetts, through December
31, 2029. The Company has an option to extend the term for an additional five-year period subject to certain terms and conditions. Additionally, we have smaller
leased offices throughout Europe, North America, Asia and Australia.
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.
29
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”.
Holders
As of February 28, 2019 there were 84 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 three 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, if any, will be at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition,
operating results, cash needs and growth plans.
Equity Compensation Plan Information
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters” in Item 12 below.
Stock Performance Graph
The following graph compares the cumulative total return to stockholders of our common stock for the period from December 31, 2013 to December 31,
2018, 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, 2013 in our common stock, the Russell 2000 Index and the S&P 500 Media Industry Index and assumes any dividends are reinvested.
30
COMPARATIVE STOCK PERFORMANCE
Among TechTarget, Inc.,
the Russell 2000 Index and
S&P 500 Media Industry Index
TechTarget Inc.
Russell 2000
S&P 500 Media Industry
12/13
12/14
12/15
12/16
12/17
12/18
$
$
$
100.00 $
100.00 $
100.00 $
165.74 $
104.89 $
109.54 $
117.06 $
100.26 $
110.41 $
124.34 $
121.63 $
122.64 $
202.92 $
139.44 $
139.65 $
177.99
124.09
142.51
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.
31
Purchases of Equity Securities by the Issuer
The following table provides information about purchases by our company during the three months ended December 31, 2018 of equity securities that are
registered by us pursuant to Section 12 of the Exchange Act.
Period
October 1, 2018 – October 31, 2018
November 1, 2018 – November 30, 2018
December 1, 2018 – December 31, 2018
Total
Purchases of Equity Securities by the Issuer
Total Number of
Shares Purchased(1)
Average Price
Paid Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(1)
— $
30,316 $
213,109 $
243,425 $
—
15.13
12.49
12.82
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
—
24,541,284
21,880,140
21,880,140
— $
30,316 $
213,109 $
243,425 $
(1)
In November 2018, we announced that the Board of Directors had approved a stock repurchase program, which authorized management to purchase up to
$25.0 million of shares of its common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program
expires in December 2020.
32
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 per share
data).
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 and amortization
Total operating expenses
Operating income
Interest and other expense, net
Income before provision for income
taxes
Provision for income taxes
Net income
Net income per common share (2) :
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Other Data:
Adjusted EBITDA (unaudited) (3)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments
Total assets
Long-term liabilities
Total liabilities
Treasury stock
Total stockholders' equity
2018
2017
Years Ended December 31,
2016
2015
2014
$
121,333 $
—
121,333
108,388 $
168
108,556
101,827 $
4,798
106,625
105,574 $
6,252
111,826
97,607
8,596
106,203
28,959
—
28,959
92,374
47,779
8,869
14,557
4,548
75,753
16,621
(1,778)
14,843
1,888
12,955 $
0.47 $
0.45 $
28,295
41
28,336
80,220
44,747
8,215
12,212
4,636
69,810
10,410
(693)
9,717
2,914
6,803 $
0.25 $
0.24 $
27,545
2,672
30,217
76,408
44,316
8,038
12,370
4,893
69,617
6,791
(1,774)
5,017
2,598
2,419 $
0.08 $
0.08 $
26,962
2,941
29,903
81,923
43,722
7,680
12,987
5,364
69,753
12,170
(249)
11,921
4,735
7,186 $
0.22 $
0.21 $
24,629
3,418
28,047
78,156
42,836
7,161
14,878
5,822
70,697
7,459
(333)
7,126
3,045
4,081
0.12
0.12
27,738
28,653
27,550
28,271
29,954
30,774
32,963
34,476
33,010
34,641
$
$
$
$
30,282 $
21,958 $
18,536 $
24,499 $
21,459
2018
2017
As of December 31,
2016
(in thousands)
2015
2014
$
$
$
$
$
$
35,173 $
176,463 $
29,325 $
43,878 $
(177,905) $
132,585 $
34,112 $
173,169 $
28,436 $
52,422 $
(170,816) $
120,747 $
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
(1)
Amounts include stock-based compensation expense as follows:
33
Cost of online revenues
Cost of events revenues
Selling and marketing
Product development
General and administrative
Total
2018
2017
Years Ended December 31,
2016
(in thousands)
2015
2014
$
$
159 $
—
4,899
200
3,855
9,113 $
43 $
—
4,120
112
2,637
6,912 $
112 $
—
4,119
159
2,462
6,852 $
84 $
—
3,530
111
2,899
6,624 $
116
8
3,287
129
3,792
7,332
(2)
Basic and diluted net income per common share is computed by dividing the net income 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.
(3)
The following table reconciles net income to Adjusted EBITDA for the periods presented and is unaudited:
Net income
Interest expense (income), net
Provision for income taxes
Depreciation and amortization
Amortization of purchase price adjustment for earnouts
EBITDA
Stock-based compensation
Other (income) expense, net
Secondary offering costs
Adjusted EBITDA
2018
2017
Years Ended December 31,
2016
(in thousands)
2015
2014
$
$
12,955 $
1,300
1,888
4,548
—
20,691
9,113
478
—
30,282 $
6,803 $
1,272
2,914
4,636
15,625
6,912
(579)
—
21,958 $
2,419 $
918
2,598
4,893
—
10,828
6,852
856
—
18,536 $
7,186 $
(53)
4,735
5,364
341
17,573
6,624
302
—
24,499 $
4,081
31
3,045
5,822
308
13,287
7,332
302
538
21,459
Earnings before interest, tax, depreciation, and amortization (“EBITDA”) is a non-GAAP financial measure used by management when reviewing our
performance. EBITDA represents earnings before interest expense (income) net, provision for income taxes, and depreciation and amortization. Adjusted EBITDA
represents EBITDA as further adjusted to exclude stock-based compensation, other (income) expense net, 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 by backing out potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or
companies of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense),
acquisition-related charges (such as amortization of intangible assets and earnouts) and the impact of non-cash stock-based compensation expense costs. Because
Adjusted EBITDA facilitates internal comparisons of operating performance on a more consistent basis, we also use Adjusted EBITDA in 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.
34
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 52.
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 and business 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, networking, or business applications, IT and business professionals rely on us for key decision support information
tailored to their specific areas of responsibility.
We enable IT and business 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 and business professionals use to assist them in their pre-
purchase research: independent content provided by our professionals, vendor-generated content provided by our customers and member-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 20.0 million and 19.1 million registered members – our “audiences” – as of December 31, 2018 and 2017, respectively. While the
size of our registered member 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 member 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, in 2018, delivered
marketing and sales services programs to approximately 1,300 customers.
Executive Summary
Our total revenues for the year ended December 31, 2018 increased approximately $12.8 million, to $121.3 million, or 12% compared with the same period
in 2017, driven by higher IT Deal Alert TM revenues. IT Deal Alert revenues were up 19% in 2018, compared to 2017. Revenues from our Priority Engine TM and
Deal Data TM products increased 45% in 2018, compared to 2017.
We continue to have success selling longer-term deals and, in the fourth quarter of 2018, 33% of our online revenues were derived from longer-term
contracts, compared to 24% in the fourth quarter of 2017. The amount of revenue that we derived from longer-term contracts in the fourth quarter of 2018 increased
by approximately $3.0 million, an increase or 40% compared to the amount that we recognized in the fourth quarter of 2017.
Online international geo-targeted revenues, where our target audience is outside North America (“International”), increased 10% for 2018, compared with
the prior year, driven by International IT Deal Alert growth.
Gross profit percentage was 76% and 74% for 2018 and 2017, respectively. Online gross profit increased by $12.3 million, primarily attributable to the
increase in revenues as compared to the prior year. We announced in February 2017, that we phased out our events product line.
35
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. D espite the current uncertainty in the economy, we feel that the right
things are in place for positive IT spending over the next few years. There are several IT catalysts such as AI, security, data analytics, and cloud
migrations, to name a few. This is coupled with the financial catalyst of the ability to expense 100% of capital improvements in the first year that
was included in the 2017 tax reform bill. Importantly, the accelerated depreciation expires after 2022, giving companies a short window to invest in
technology with favorable tax treatment. 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 also 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. In March 2017, the United Kingdom’s government initiated the exit process under Article 50 of the Lisbon Treaty,
commencing a period of up to two years for the United Kingdom and other EU member states to negotiate the terms of the withdrawal. While both
parties have reported constructive progress with respect to the negotiations to date, continued uncertainty remains regarding the terms of the United
Kingdom’s new partnership with the European Union and its member states. The overall impact of Brexit may create further global economic
uncertainty, which may cause a subset of our customers to more closely monitor their costs in the affected region. Our revenue generated from
customers who have billing addresses within the United Kingdom was approximately 10% of our total revenues for each of the years ended
December 31, 2018 and 2017.
Customer Demographics. In the year ended December 31, 2018 , online revenues from our ten major global customers, which have significant
international exposure, increased by approximately 2% compared to the prior year. Online revenues from our mid-sized customers (our largest 100
customers, excluding the ten major global customers described above, which generally have less exposure internationally) increased by
approximately 15% compared to the prior year. Online revenues attributable to our smaller customers, which tend to be venture capital-backed start-
ups that primarily operate in North America, increased by approximately 24% over the prior year.
Our key strategic initiatives include:
•
•
Geographic – During 2018, approximately 32% of our online revenues were derived from International campaigns. We rolled out Priority Engine in
Latin America in the first quarter of 2018.
Product – IT Deal Alert revenues were approximately $59.0 million in the year ended December 31, 2018, up from approximately $49.5 million in
2017. This includes International IT Deal Alert revenues of $15.7 million, which is also included in International revenues as discussed above. In the
fourth quarter of 2018, we had more than 690 active customers utilizing our IT Deal Alert products and services, up from more than 600 customers
in the fourth quarter of 2017.
Our core online revenues were up 6% in 2018 compared to 2017, which was primarily driven by our medium and small customers. 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, our sales team continues to emphasize the benefits of integration across both IT Deal Alert and core online offerings.
As we disclosed on our earnings call on February 6, 2019 we will be reporting revenue as a single number beginning in 2019. We will disclose total
revenue, revenue by geography (North America and International) and the percentage of long-term revenue generated in quarter. As our products leverage the
purchase intent data in their delivery, the lines between them continue to blur resulting in less meaningful distinction between the two product lines.
36
Sources of Revenues
Revenue for the twelve month periods ended December 31, 2018, 2017 and 2016 by product and geo-target were as follows (in thousands):
Total Online
Total Online by Geographic Area:
North America:
North America IT Deal Alert
North America Core Online
Total North America Online
International:
International IT Deal Alert
International Core Online
Total International Online
Total Online by Product:
IT Deal Alert:
North America IT Deal Alert
International IT Deal Alert
Total IT Deal Alert
Core Online:
North America Core Online
International Core Online
Total Core Online
Total Events
Total Revenues
Twelve Months Ended December 31,
2018
2017
2018 vs.
2017
% change
2017 vs.
2016
2016
% change
$
121,333 $
108,388
12% $
101,827
6%
$
43,342 $
39,318
82,660
15,707
22,966
38,673
43,342
15,707
59,049
39,318
22,966
62,284
—
$
121,333 $
36,622
36,586
73,208
12,907
22,273
35,180
36,622
12,907
49,529
36,586
22,273
58,859
168
108,556
18% $
7%
13%
22%
3%
10%
18%
22%
19%
7%
3%
6%
(100)%
12% $
25,743
43,296
69,039
5,661
27,127
32,788
25,743
5,661
31,404
43,296
27,127
70,423
4,798
106,625
42%
(15)%
6%
128%
(18)%
7%
42%
128%
58%
(15)%
(18)%
(16)%
(96)%
2%
We sell customized marketing programs to IT vendors targeting a specific audience within a particular IT or business sector or sub-sector. We maintain
multiple points of contact with our customers to provide support throughout their organizations and their customers’ IT sales cycles. As a result, our customers
often run multiple advertising programs with us in order to target their desired audience of IT and business 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 longer-term contracts with certain customers and, in the fourth quarter of
2018 and 2017 approximately 33% and 24% respectively of our online revenues were from longer-term contracts of approximately 12 months.
Online revenues represented 100%, 100%, and 96% of total revenues for the years ended December 31, 2018, 2017, and 2016, respectively. As previously
disclosed, we phased out our events product line.
Product and Service Offerings
We use our online offerings to provide IT vendors with numerous touch points to identify, reach and influence key IT decision makers. The following is a
description of the products and services we offer, which may be provided separately or combined as part of an integrated marketing campaign
IT Deal Alert: Priority Engine ™. Priority Engine is a subscription service powered by our Activity Intelligence platform, which integrates with customer
relationship management and marketing automation platforms from salesforce.com, Marketo, Eloqua, Pardot, and Integrate. The service delivers
information that enables marketers and sales personnel to identify and understand accounts and individuals actively researching new technology purchases
and then to engage those active prospects within the organizations that are relevant to the purchase. We sell this service in approximately 200 technology-
specific
37
segments which our customers use for demand generation, account-based marketing and other marketing and sales activities . Priority Engine is also
available with specific geographic focus, bringing the total available segments to over 300.
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 110 technology-specific segments.
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 and
business 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.
Demand Solutions. Our suite of demand solutions offerings allows IT vendors to maximize return on investment by capturing sales leads from the
distribution and promotion of content to our audience of IT and business professionals. We leverage our Activity Intelligence framework to enable significant
segmentation and targeting of specific audiences that can be accessed through these programs.
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 members receive
targeted promotions about these content assets. Prior to viewing white papers, our registered members and visitors supply their corporate contact
information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are
supplied to the vendor in real time through our proprietary lead management software.
Webcasts, Podcasts, Videocasts and Virtual Trade Shows . Webcasts, podcasts, videocasts, virtual trade shows and similar content bring
informational sessions directly to attendees’ desktops and mobile devices. As is the case with white papers, our members 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 and business 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 and business 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.
38
Events. Events revenues represented 0%, 0%, and 4% of total revenues for the years ended December 31, 2018, 2017, and 2016, respectively. Historically,
we have operated a select number of face-to-face events, the majority of which were free to IT and business professionals and were sponsored by IT vendors. In
2017, we ceased to offer these services to our customers and in stead 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 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 Revenue s. Cost of online revenues consists primarily of: salaries and related personnel costs; member acquisition expenses (primarily keyword
purchases from leading internet search sites); Lead generation expenses; freelance writer expenses; website hosting costs; vendor expenses associated with the
delivery of webcast; podcast, videocast and similar content; and other offerings; stock-based compensation expenses; facility expenses and other related overhead.
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 three 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
eighteen months to seventeen 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 Senior Secured Credit Facilities Credit Agreement for a term loan (“Term Loan Agreement”) and amortization of premiums on our
investments, less any interest income earned on cash, cash equivalents and short-term and long-term investments. We historically have invested our cash in money
market accounts, municipal bonds, government agency bonds, U.S. Treasury securities, and corporate bonds. Other, expense consists primarily 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.
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.
39
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
and data analytics solutions. We recognize revenue when performance obligations are satisfied by transferring promised goods and services to customers in an
amount the company expects to receive in exchange for those goods or services. The Company enters into contracts that can include various combinations of its
offerings which are generally capable of being distinct and accounted for as a separate performance obligation.
The Company’s offerings consist of:
IT Deal Alert provides a suite of products that leverages 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. We provide this insight primarily through Priority Engine TM ,
TargetROI TM , Qualified Sales Opportunites TM and Deal Data TM . Revenue from Priority Engine allows customers access to purchase intent data through the life
of the contract and is recognized ratably over the contract period. Target ROI contains Priority Engine as well as other duration based solutions, which are
discussed below, and revenue from Target ROI is recognized ratably over the contract period using the same time-based measure of progress for each of the distinct
performance obligations included within TargetROI. Revenue from Qualified Sales Opportunities, Deal Data and Research is recognized at the point in time when
control is transferred to the customer, which occurs when the related reports are provided to the customer.
Core Online consists primarily of demand solutions, brand solutions, and custom content. Demand solutions offerings provide the Company’s customers the
opportunity to maximize return on investment by capturing sales leads from the distribution and promotion of content to its audience. Demand solutions may
contain the following components: White Papers, Webcasts, Podcasts, Videocasts and Virtual Trade Shows, and Content Sponsorship, which the Company may
utilize at its discretion. Brand Solutions provide the Company’s customers to target audiences of IT and business professionals actively researching information
related to their products and services. This can be accomplished through on-network or off-network branding as well as through the hosting of Microsites. The
Company will at times create white papers, case studies, webcasts, or videos to our customers’ specifications through its Custom Content team (“custom content”).
Revenue from brand and demand solutions is primarily recognized when the transfer of control occurs. Certain of the contracts within brand and demand
solutions are duration-based campaigns which, in the event of customer cancellation, provide the Company with an enforceable right to a proportional payment for
the portion of the campaign based on services provided. Accordingly, revenue from duration-based campaigns are recognized using a time-based measure of
progress, which the Company believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously transferred
throughout the contract period.. Revenue from Microsites is recognized ratably over the life of the contract. Revenue from custom content creation is recognized
over the expected period of performance using a single measure of progress, typically based on hours incurred.
We recognized revenue from events in the period in which the event occurs. The majority of our events were free to qualified attendees; however, certain
events were based on a paid attendee model. We recognized revenue for paid attendee events upon completion of the event. As previously disclosed, we have
phased out our events product line.
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 eighteen months to seventeen 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
40
any. As of December 31, 2018, there were no indications of impairment based on our st ep 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 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 $2.1 million and $1.8 million at December 31, 2018 and 2017, 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
Years Ended December 31,
2017
2018
2016
39%
43%
46%
6 years
6 years
6 years
2.82%
—%
1.87%
—%
$
11.94
$
4.61
$
1.90%
—%
3.91
The expected volatility of options granted in 2018, 2017, and 2016 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 based on historical averages 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. 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 internal use software and websites, assess the ongoing value of
capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of internal use software and 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
41
indicate that the carrying amount of the asset may not be recoverable. We would recognize an impairment loss only if the carrying amount of the asset is not
recoverable and exceeds its fair value. We capitalized internal-use software and website development costs of $3.0 million, $2.9 million, and $2.8 mil lion for the
years ended December 31, 2018, 2017, and 2016, respectively.
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
expected to be in effect when such differences are settled.
Our net deferred tax liabilities 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, 2018, we had foreign net operating loss (“NOL”) carryforwards of $0.2 million, which may
be used to offset future taxable income in foreign jurisdictions and may be carried forward indefinitely. The deferred tax assets related to the foreign NOL
carryforwards have been fully offset by a valuation allowance.
On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant
changes to the Internal Revenue Code of 1986, as amended. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax
years beginning after December 31, 2017.
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 unit awards outstanding during the period. Because the holders of unvested restricted stock unit awards do
not have non-forfeitable 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 unit awards outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option
and restricted stock unit award programs using the treasury stock method. In calculating diluted EPS, the dilutive effect of stock options and restricted stock unit
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 of stock options and restricted stock unit 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 unit awards.
42
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 and amortization
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, 2018 and 2017
Revenues
Revenues:
Online
Events
Total revenues
2018
Years Ended December 31,
2017
($ in thousands)
2016
$
121,333
—
121,333
100% $
—
100
108,388
168
108,556
100% $ 101,827
4,798
106,625
0
100
96%
4%
100
28,959
—
28,959
92,374
47,779
8,869
14,557
4,548
75,753
16,621
(1,778)
14,843
1,888
12,955
$
24
—
24
76
39
7
12
4
62
14
(2)
12
1
11% $
28,295
41
28,336
80,220
26
0
26
74
44,747
8,215
12,212
4,636
69,810
10,410
(693)
9,717
2,914
6,803
41
8
11
4
64
10
(1)
9
3
6% $
27,545
2,672
30,217
76,408
26%
2
28
72
44,316
8,038
12,370
4,893
69,617
6,791
(1,774)
5,017
2,598
2,419
42
8
12
4
65
6
(2)
4
2
2%
2018
Years Ended December 31,
Increase
(Decrease)
2017
($ in thousands)
Percent
Change
$
$
121,333 $
—
121,333 $
108,388 $
168
108,556 $
12,945
(168)
12,777
12%
(100)
12%
Online. Online revenues for the year ended December 31, 2018 (“fiscal 2018”) increased by $12.9 million over the year ended December 31, 2017 (“fiscal
2017”). This increase was driven by an increase of $9.5 million in revenues from our IT Deal Alert product offerings as well as a $3.4 million in our core online
product offerings.
Events. As noted above, we ceased offering our events product line during 2017.
43
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2018
2017
Increase
(Decrease)
Percent
Change
($ in thousands)
$
$
$
28,959
—
28,959
$
$
92,374
$
76%
28,295
41
28,336
$
$
80,220
$
74%
664
(41)
623
12,154
2%
(100)%
2%
15%
Cost of Revenues. The increase in cost of revenues was primarily driven by the increase in variable costs attributable to contracted services costs related to
fulfilling campaigns attributable to an increase of $12.9 million in online revenues.
Cost of Events Revenues . We have phased out our events product line.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage for fiscal 2018
was 76% as compared to 74% for fiscal 2017. Gross profit increased in fiscal 2018 as compared to the same period in 2017, primarily attributable to the increase in
revenues as compared to the same period a year ago. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to
period depending on the total revenues for the period.
Operating Expenses and Other
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation and amortization
Total operating expenses
Interest and other expense, net
Provision for income taxes
Years Ended December 31,
2018
2017
Increase
(Decrease)
Percent
Change
($ in thousands)
$
$
$
$
47,779 $
8,869
14,557
4,548
75,753 $
(1,778) $
1,888 $
44,747 $
8,215
12,212
4,636
69,810 $
(693) $
2,914 $
3,032
654
2,345
(88)
5,943
(1,085)
(1,026)
7%
8
19
(2)
9%
156%
(35)%
Selling and Marketing . Sales and marketing costs increased by $3.0 million for the fiscal year ended December 31, 2018 as compared to the fiscal year
ended December 31, 2017 primarily as a result of an increase in salaries and related costs (including an increase in stock compensation of $0.8 million).
Product Development . Product development costs increased by $0.7 million in fiscal year ended December 31, 2018 as compared to fiscal year ended
December 31, 2017. Salaries and related costs (including an increase of stock compensation of $0.1 million) increased by $0.4 million. Contracted services, hosting
expenses and hardware and software related cost increased by $0.4 million which was partially offset by a $0.1 million decrease in operating supplies.
General and Administrative . General and administrative costs increased by $2.3 million in fiscal year ended December 31, 2018 as compared to fiscal year
ended December 31, 2017 primarily as a result of an increase in salaries and related costs (including an increase in stock compensation of $1.2 million) of
$1.5million. Additionally, non-income based taxes increased by $0.4 million
Depreciation and Amortization . Depreciation expense in fiscal 2018 decreased slightly when compared to fiscal 2017 primarily due to prior year assets
ending their depreciable lives and the mix of new additions and their depreciable lives.
44
Interest and Other Expense, Net . Interest expense, net in 2018 was flat compared to 2017. The $1.1 million change was primarily due to foreign currency-
related losses of $0.5 million in 2018 com pared to foreign currency-related gains of $0.6 million in 2017. The foreign currency-related gains and losses were due
to changes in exchange rates in countries where we record accounts receivable and accounts payable in the normal course of business, lar gely the United Kingdom
and Australia.
Provision for Income Taxes . Our effective tax rate was 13% and 30% for the years ended December 31, 2018 and 2017, respectively. We have permanent
differences that increase or decrease our tax expense on income or reduce or increase our tax benefit on loss; the lower rate in 2018 as compared to 2017 was
primarily due to the reduction in the Federal Income Tax rate due to the Tax Cuts and Jobs Act of 2017 and excess deductions related to stock-based compensation.
The effective tax rate differs from the statutory rate primarily due to these permanent differences of non-deductible expenses, state income taxes, and foreign
income taxes.
Comparison of Fiscal Years Ended December 31, 2017 and 2016
Revenues
Revenues:
Online
Events
Total revenues
2017
Years Ended December 31,
Increase
(Decrease)
2016
($ in thousands)
Percent
Change
$
$
108,388 $
168
108,556 $
101,827 $
4,798
106,625 $
6,561
(4,630)
1,931
6%
(96)
2%
Online. Online revenues for the year ended December 31, 2017 (“fiscal 2017”) increased by $6.6 million over the year ended December 31, 2016 (“fiscal
2016”). This increase was driven by an increase of $18.1 million in revenues from our IT Deal Alert product offerings, partially offset by a decrease of $11.6
million in our core online product offerings.
Events. The decrease in events revenues is primarily due to the cessation of events in 2017.
Cost of Revenues and Gross Profit
Cost of revenues:
Online
Events
Total cost of revenues
Gross profit
Gross profit percentage
Years Ended December 31,
2017
2016
Increase
(Decrease)
Percent
Change
($ in thousands)
$
$
$
28,295
41
28,336
$
$
80,220
$
74%
27,545
2,672
30,217
$
$
76,408
$
72%
750
(2,631)
(1,881)
3,812
3%
(98)
(6)%
5%
Cost of Online Revenues. The increase in cost of online revenues was primarily driven by the increase in variable costs attributable to the $6.6 million
increase in online revenues, as well as contracted services costs related fulfilling certain IT Deal Alert and demand generation campaigns.
Cost of Events Revenues . The decrease in cost of events revenues was due to the cessation of events in 2017.
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 2017
was 74% as compared to 72% for fiscal 2016. Online gross profit increased $5.8 million in fiscal 2017 as compared to the same period in 2016, primarily
attributable to the increase in online revenues as compared to the same period in the prior year, offset in part by increased costs associated with our new products as
well as the contracted services associated with fulfilling certain demand generation campaigns. Online gross profit percentage increased to 74% in fiscal 2017 from
73% in fiscal 2016. Events gross profit decreased by $2.0 million in 2017, primarily as a result of phase out of events in 2017 compared to the same period in the
prior year.
45
Operating Expenses a nd Other
Operating expenses:
Selling and marketing
Product development
General and administrative
Depreciation and amortization
Total operating expenses
Interest and other expense, net
Provision for income taxes
2017
Years Ended December 31,
Increase
(Decrease)
2016
($ in thousands)
Percent
Change
$
$
$
$
44,747 $
8,215
12,212
4,636
69,810 $
(693) $
2,914 $
44,316 $
8,038
12,370
4,893
69,617 $
(1,774) $
2,598 $
431
177
(158)
(257)
193
1,081
316
1%
2
(1)
(5)
0%
(61)%
12%
Selling and Marketing . Selling and marketing expenses increased slightly year over year, primarily due to an increase in variable compensation-related
expenses when compared to the prior year.
Product Development . Product development expenses remained relatively flat year over year.
General and Administrative . General and administrative expenses remained relatively flat year over year.
Depreciation and Amortization . Depreciation expense increased when compared to fiscal 2016 primarily due to additions of property and equipment. The
decrease in amortization of intangible assets expense in 2017 was attributable to the timing with which the amortization expense for certain intangible assets is
recorded.
Interest and Other Expense, Net . Interest expense, net in fiscal 2017 and 2016 was $1.3 million and $0.9 million respectively. The increase in interest
expense was primarily due to an increase of $0.3 million in interest expense associated with the term loan that we entered into during the second quarter of 2016.
The 2017 change in other expense of $1.4 million was primarily due to a $0.6 million benefit in 2017 from foreign currency gains compared to $0.9 million in
foreign currency losses in 2016. 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 30% and 52% for the years ended December 31, 2017 and 2016, respectively. We have permanent
differences that increase our tax expense on income or reduce our tax benefit on loss; the lower rate in 2017 as compared to 2016 was primarily due to excess
deductions related to stock-based compensation attributable to the adoption of ASU No.2016-09, Compensation-Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting (“ASU 2016-09”), research and development credits, and revaluation of our deferred tax liability. The effective tax
rate differs from the statutory rate primarily due to the permanent differences of non-deductible expenses, state income taxes, and foreign income taxes.
46
Selected Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2018. 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.
March 31, June 30,
September 30,
2018
For the Three Months Ended
December 31,
(in thousands, except per share data)
March 31, June 30,
2017
September 30,
December 31,
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 and
amortization
Total operating
expenses
Operating
income
Interest and other
expense, net
Income (loss)
before provision
for (benefit from)
income taxes
(Benefit from)
provision for
income taxes
Net (loss)
income
Net (loss)
income per
share - basic
Net (loss)
income per
share - diluted
$ 27,299 $ 31,472 $
—
31,472
—
27,299
30,742 $
—
30,742
31,820 $ 23,409 $ 26,664 $
—
26,664
—
31,820
168
23,577
28,012 $
—
28,012
6,725
—
7,124
—
7,445
—
7,665
—
6,895
41
7,085
—
6,951
—
6,725
20,574
7,124
24,348
7,445
23,297
7,665
24,155
6,936
16,641
7,085
19,579
6,951
21,061
30,303
—
30,303
7,364
—
7,364
22,939
11,355
11,419
12,479
12,526
10,693
10,745
11,568
11,741
2,118
2,069
2,340
2,342
1,943
2,016
2,209
2,047
3,399
3,327
3,938
3,893
3,056
3,198
3,288
2,670
1,108
1,140
1,156
1,144
1,131
1,135
1,109
1,261
17,980
17,955
19,913
19,905
16,823
17,094
18,174
17,719
2,594
6,393
3,384
4,250
(182)
2,485
2,887
5,220
(200)
(644)
(362)
(572)
(163)
(94)
(190)
(246)
2,394
5,749
3,022
3,678
(345)
2,391
2,697
4,974
300
1,329
(747)
1,006
(316)
1,030
623
1,577
$
2,094 $
4,420 $
3,769 $
2,672 $
(29) $
1,361 $
2,074 $
3,397
$
0.08 $
0.16 $
0.14 $
0.10 $
(0.00) $
0.05 $
0.08 $
0.12
$
0.07 $
0.15 $
0.13 $
0.09 $
(0.00) $
0.05 $
0.07 $
0.12
47
Seasonality
The timing of our revenues is affected by seasonal factors. Our revenues are seasonal primarily as a result of the annual budget approval process of many of
our customers, the normal timing at which our customers introduce new products, and the historical decrease in advertising in summer months. The timing of
revenues in relation to our expenses, 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, 2018, our cash, cash equivalents and investments totaled $35.2 million. Our cash, cash equivalents and investments increased by $1.1
million during fiscal 2018, primarily due to the cash generated from operations and proceeds from the sales and maturities of investments and proceeds from the
new term loan partially offset by the repurchase of shares under our stock repurchase plan and principal payments on our term loan. Additionally, we utilized cash
for purchases of property and equipment and other capitalized assets. We believe that our existing cash, cash equivalents, and investments, and our cash flow from
operating activities will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future working capital requirements will depend on
many factors, including the operations of our existing business, our potential strategic expansion internationally, future acquisitions we might undertake, and the
expansion into complementary businesses. To the extent that our cash and cash equivalents, investments and cash flow from operating activities are insufficient to
fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need
to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses.
Cash, cash equivalents and investments
Accounts receivable, net
Cash, Cash Equivalents and Investments
2018
As of December 31,
2017
(in thousands)
2016
$
$
35,173 $
30,042 $
34,112 $
29,601 $
37,274
22,551
Our cash, cash equivalents and investments at December 31, 2018 were held for working capital purposes and were invested primarily in money market
accounts and U.S. Treasury securities. 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 87 days at December 31, 2018, 90 days at December 31, 2017 and 78 days at
December 31, 2016. The change in DSO year over year is primarily due to the timing of payments from all classes of customers.
Cash Flows
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
48
2018
Years Ended December 31,
2017
(in thousands)
2016
$
$
$
23,877 $
1,692 $
(16,778) $
18,649 $
6,263 $
(17,386) $
18,345
(3,616)
(11,112)
Operating Activities
Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, the
provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities.
The increase in cash provided by operating activities in fiscal 2018 compared to fiscal 2017 was primarily a result of a $6.2 million increase in net income
offset in part by changes in operating assets and liabilities, primarily driven by increases in accounts receivable and contract liabilities of $1.5 million and $2.0
million, respectively, in 2018.
The increase in cash provided by operating activities in fiscal 2018 compared to fiscal 2017 was primarily a result of a $4.4 million increase in net income
as well as of changes in operating assets and liabilities, primarily driven by a $2.7 million increase in income taxes payable and a $3.2 million increase in other
liabilities. The increase in other liabilities was primarily due changes in deferred rent related to a one-time cash allowance of $3.3 million associated with a third
amendment to the Newton lease. (see Note 10 to our Consolidated Financial Statements) This was partially offset by increases in accounts receivable, net of $7.9
million in 2017, compared with decreases in accounts receivable, net of $3.1 million in 2016.
Investing Activities
Cash provided by investing activities in the year ended December 31, 2018 was $1.7 million; $7.6 million from the net sales and maturities of short-term
and long-term investments, partially offset by $5.5 million for the purchase of property and equipment and other capitalized assets, made up primarily of leasehold
improvements, computer equipment and related software and internal-use development costs and $0.4 million for cash used to acquire the operating assets of a
business.
Cash provided by investing activities in the year ended December 31, 2018 was $1.7 million; $7.6 million from the net sales and maturities of short-term
and long-term investments, partially offset by $5.5 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.
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.
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 $5.5
million, $4.1 million, and $4.4 million for the years ended December 31, 2018, 2017, and 2016, respectively. A majority of our capital expenditures in 2018, 2017,
and 2016 were internal-use software and website development costs and, to a lesser extent, computer equipment and related software. Additionally during 2018, the
Company expended funds relating to leasehold improvements at its corporate offices.
We expect to spend approximately $5.2 million in capital expenditures in 2019, primarily for internal-use software and website development costs and
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 $1.0 million, $0.9 million and $4.2 million in the years ended December 31,
2018, 2017, and 2016, respectively. These inflows were offset by $7.1 million, $8.1 million, and $8.0 million used for the repurchase of shares under our stock
repurchase programs in 2018, 2017, and 2016, respectively, as well as $3.2 million, $3.9 million, and $4.4 million related to tax withholdings on net share
settlements in 2018, 2017, and 2016, respectively.
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 $50.0 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 shares of our common stock. We repaid $32.5 million, $6.3
million and $11.3 million of principal against the outstanding Term Loan during 2018, 2017 and 2016, respectively.
49
On December 24, 2018 the Company entered into a loan agreement with Western Alliance Bank (“Loan Agreement”). The Loan Agreement provides for a
$25.0 million term loan facility with a maturity date of Decembe r 10, 2023 in which the Company received $25.0 million in cash.
Common Stock Repurchase Programs
In November 2018, we announced that our Board had authorized a $25.0 million stock repurchase program( the “November 2018 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 management. During the last quarter 2018 we repurchased 243,425 shares of common stock for an aggregate purchase price of
approximately $3.1 million pursuant to the (“November 2018 Repurchase Program”). As of December 31, 2018 approximately $22.0 million remained authorized.
In June 2016, we announced that our Board had authorized a $20.0 million stock repurchase program (the “June 2016 Repurchase Program”), whereby we
are authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may
be determined by our Board. During 2018, 2017 and 2016 we repurchased 211,729 , 749,437 and 980,329 shares of common stock, respectively, for an aggregate
purchase price of $3.9 million, $8.1 million and $8.0 million respectively, pursuant to the June 2016 Repurchase Program. On May 5, 2017, our Board reauthorized
the common stock repurchase program to allow us to use the remaining balance of the unused authorization under the 2016 Repurchase Program after its original
expiration in June 2017. The reauthorized program allowed us to repurchase our common stock from time to time on the open market or in privately negotiated
transactions at prices and in the manner that may be determined by our management. The June 2016 Repurchase program expired in August 2018.
In the twelve months ended December 31, 2018 we repurchased a total of 455,154 shares for a total of $7.0 million under the “June 2016 Repurchase
Program” and the “November 2018 Repurchase Program.”
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 of 2016 (see Note 9 to our Consolidated
Financial Statements).
Tender Offer
On May 10, 2016, we commenced a tender offer to purchase up to 8.0 million shares of our common stock at a price of $7.75 per share.
The tender offer expired on June 8, 2016. In accordance with the terms of the tender offer, we accepted for purchase 5,237,843 shares of our common stock
for a total of $40.8 million, which included approximately $0.2 million in costs directly attributable to the tender offer. In connection with the tender offer, TCV V,
L.P., TCV Member Fund, L.P. (along with TCV V, L.P., referred to as the “TCV Funds”) and TCV Management 2004, L.L.C. (“TCM 2004”), each a related party,
collectively tendered 3,379,249 shares of our common stock in the aggregate. Jay Hoag, a member of our Board 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 our voting
securities. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the Tender Offer. Roger Marino, a member of our Board of
Directors, indirectly controls shares in Rogram LLC.
Term Loan
On May 9, 2016, we entered into the Term Loan Agreement, under which, we borrowed $50.0 million in aggregate principal amount pursuant to a five-year
term loan. The borrowings under the Term Loan Agreement were secured by a lien on substantially all of our assets, including a pledge of the stock of certain of
our wholly-owned subsidiaries. The Term Loan was replaced by the Loan Agreement entered into with Western Alliance Bank in December, 2018, as more fully
described below.
On December 24, 2018, TechTarget Inc. (the “Company”) entered into the Loan Agreement (the “Loan Agreement”) with Western Alliance Bank
(“Western Alliance”) as the lender. The Loan Agreement provides for a $25 million term loan facility with a maturity date of December 10, 2023 and replaces the
Term Loan.
The borrowings under the 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 (limited, in the case of the stock of certain foreign subsidiaries of the Company, to no more than 65% of the capital stock of such
subsidiaries). The Loan Agreement must be repaid quarterly, with applicable interest paid monthly, in the following manner: 1.25% of the initial aggregate
borrowings are due and payable each quarter
50
for the first two loan years, 1.88% of the initial aggregate borrowings are due and payable ea ch quarter for the third loan year, and 2.50% of the initial aggregate
borrowings are due and payable each quarter for the fourth and fifth loan years. At maturity, all outstanding amounts, including unpaid principal and accrued and
unpaid interest, under the Loan Agreement will be due and payable.
The borrowings are subject to a leverage ratio, measured quarterly. The Loan Agreement also requires the Company to make representations and warranties
and to comply with certain other covenants and agreements that are customary in loan agreements of this type. At December 31, 2018, we were in compliance with
all covenants under the Loan Agreement.
The Loan Agreement will bear interest, on the outstanding daily balance thereof, at a floating per annum rate equal to one and three-eighths percent
(1.375%) above the greater of (a) the one (1) month U.S. LIBOR rate reported in The Wall Street Journal as of such date or (b) two percent (2.00%).
The Loan Agreement required the Company to pay a one-time non-refundable facility fee of approximately $25,000 on the closing date.
The Loan Agreement may be prepaid by the Company at its option without penalty, provided the Company complies with the notice provision of the
document. The Loan Agreement also contains customary events of default, subject to grace periods in certain cases, which may cause repayment of the Loan
Agreement to be accelerated.
Contractual Obligations and Commitments
As of December 31, 2018, our principal contractual commitments consist of obligations under leases for office space and borrowings under our Loan
Agreement. The offices are leased under non-cancelable operating lease agreements that expire through 2029.
The following table sets forth our commitments to settle contractual obligations in cash as of December 31, 2018:
Contractual Obligations
Term loan payable
Operating leases
Total
Total
25,000 $
39,591
$
64,591
$
$
Payments Due By Period (in thousands)
Less than
1 Year
1–3 Years
3–5 Years
More than
5 Years
1,250 $
4,180
$
5,430
3,125
$
7,350
$
10,475
20,625
$
6,794
$
27,419
—
21,267
21,267
See Note 9 to our Consolidated Financial Statements for further information on our Term Loan Agreement, and Note 10 to our 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 our Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
51
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, 2018. 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.
52
Item 7A.
Quantitative and Qualitat ive 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. Approximately 26% of our revenues for the
year ended December 31, 2018 were derived from customers with billing addresses outside of the United States and our foreign exchange gains/losses were not
significant. Currently, our largest foreign currency exposures are the euro and British pound. We performed a sensitivity analysis on the impact of foreign exchange
fluctuations on our operating income, based on our financial results for the year ended December 31, 2018. For the year ended December 31, 2018, we estimate that
a 10% unfavorable movement in foreign currency exchange rates would have decreased operating income by approximately $125, assuming that all currencies
moved in the same direction at the same time and a constant ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and
expenses. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in
foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency
exchange rate in effect at the time the expense is incurred. We currently believe our exposure to foreign currency exchange rate fluctuations is financially
immaterial and therefore have not entered into foreign currency hedging transactions.
We continue to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in the future. The
volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure
to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.
Interest Rate Risk
At December 31, 2018, we had cash, cash equivalents and investments totaling $35.2 million. These amounts were invested primarily in money market
accounts and U.S. Treasury securities. The cash, cash equivalents and investments were held for working capital purposes. We do not enter into investments for
trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair
value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.
Our exposure to market risk also relates to interest expense on borrowings under the Loan Agreement. The borrowings under the Loan Agreement bear
interest at an annual rate of 1.375% plus the higher of the one (1) month U.S. LIBOR rate reported in the Wall Street Journal or two percent (2.00%) (see Note 9 to
our Consolidated Financial Statements). Based on the $25.0 million of aggregate principal outstanding under the Loan Agreement as of December 31, 2018, a 200
basis point increase in interest rates would increase our annual interest expense under the Loan Agreement by approximately $0.5 million.
53
Item 8.
Financial Statemen ts and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
54
Page
55
56
57
58
59
60
Report of Independent Regist ered Public Accounting Firm
Shareholders and Board of Directors
TechTarget, Inc.
Newton, Massachusetts
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TechTarget, Inc. (the “Company”) and subsidiaries as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018 and 2017, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2018 , 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) (“PCAOB”), the Company's internal
control over financial reporting as of December 31, 2018, 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 12, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2011.
Boston, Massachusetts
March 12, 2019
55
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2018
2017
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $2,099 and $1,783 as
of December 31, 2018 and 2017, respectively
Prepaid taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term investments
Goodwill
Intangible assets, net
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Current portion of term loan
Accrued expenses and other current liabilities
Accrued compensation expenses
Income taxes payable
Contract liabilities
Total current liabilities
Long-term liabilities:
Long-term portion of term loan
Deferred rent
Deferred tax liabilities
Total liabilities
Commitments and contingencies (See Note 10)
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;
54,117,325 shares issued and 27,791,045 shares outstanding at December 31, 2018;
53,338,297 shares issued and 27,483,115 shares outstanding at December 31, 2017
Treasury stock, 26,326,280 and 25,855,182 shares at December 31, 2018 and 2017,
respectively, at cost
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings (accumulated deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
34,673 $
500
30,042
1,834
3,069
70,118
10,901
—
93,687
849
55
853
176,463 $
1,871 $
1,241
3,260
2,432
176
5,573
14,553
23,714
4,949
662
43,878
—
54
(177,905)
307,014
(215)
3,637
132,585
176,463 $
25,966
7,650
29,601
1,303
3,088
67,608
9,786
496
93,793
506
98
882
173,169
1,542
9,888
3,343
1,397
218
7,598
23,986
22,339
5,259
838
52,422
—
53
(170,816)
300,763
65
(9,318)
120,747
173,169
See accompanying Notes to Consolidated Financial Statements.
56
TechTarget, Inc.
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
2018
For the Years Ended December 31,
2017
2016
Revenues:
Online
Events
Total revenues
Cost of revenues:
Online(1)
Events
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing(1)
Product development(1)
General and administrative(1)
Depreciation and amortization
Total operating expenses
Operating income
Interest and other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investments (net of tax (provision) benefit of
$(11), $(7), and $6, 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
Selling and marketing
Product development
General and administrative
$
121,333 $
—
121,333
28,959
—
28,959
92,374
47,779
8,869
14,557
4,548
75,753
16,621
(1,778)
14,843
1,888
12,955 $
15 $
(295)
(280)
12,675 $
0.47 $
0.45 $
27,738
28,653
159 $
4,899 $
200 $
3,855 $
$
$
$
$
$
108,388 $
168
108,556
101,827
4,798
106,625
28,295
41
28,336
80,220
44,747
8,215
12,212
4,636
69,810
10,410
(693)
9,717
2,914
6,803 $
13 $
300
313
7,116 $
0.25 $
0.24 $
27,550
28,271
43 $
4,120 $
112 $
2,637 $
27,545
2,672
30,217
76,408
44,316
8,038
12,370
4,893
69,617
6,791
(1,774)
5,017
2,598
2,419
(10)
84
74
2,493
0.08
0.08
29,954
30,774
112
4,119
159
2,462
See accompanying Notes to Consolidated Financial Statements.
57
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Balance, December 31, 2015
50,927,426 $
51 18,887,573 $ (113,949) $
293,003 $
(322) $
(18,782) $
160,001
Common Stock
Treasury Stock
Number of
Shares
$0.001
Par Value
Number of
Shares
Cost
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders’
Equity
Issuance of common stock from stock options and
restricted
stock units
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 gain on foreign currency translation
Net income
1,673,858
1
4,191
980,329
(7,988)
5,237,843
(40,794)
(2,747)
6,852
(4,446)
(10)
84
Balance, December 31, 2016
52,601,284 $
52 25,105,745 $ (162,731) $
296,853 $
(248) $
Issuance of common stock from stock options and
restricted
stock units
Purchase of common stock through stock repurchase
program
Shelf registration and other fees
Stock-based compensation expense
Tax withholdings related to net share settlement of
RSU’s
Unrealized gain on investments (net of tax provision
of $7)
Unrealized gain on foreign currency translation
Reclassification for adoption of ASU 2016-09
Net income
737,013
1
749,437
(8,085)
941
(3)
6,912
(3,940)
13
300
Balance, December 31, 2017
53,338,297 $
53 25,855,182 $ (170,816) $
300,763 $
65 $
Issuance of common stock from stock options and
restricted
stock units
Purchase of common stock through stock repurchase
program
Stock-based compensation expense
Tax withholdings related to net share settlement of
RSU’s
Unrealized gain on investments (net of tax provision
of $11)
Unrealized loss on foreign currency translation
Net income
Balance, December 31, 2018
779,028
1
471,098
(7,089)
1,004
8,397
(3,150)
15
(295)
54,117,325 $
54 26,326,280 $ (177,905) $
307,014 $
(215) $
12,955
3,637 $
12,955
132,585
See accompanying Notes to Consolidated Financial Statements.
58
2,419
(16,363) $
242
6,803
(9,318) $
4,192
(7,988)
(40,794)
(2,747)
6,852
(4,446)
(10)
84
2,419
117,563
942
(8,085)
(3)
6,912
(3,940)
13
300
242
6,803
120,747
1,005
(7,089)
8,397
(3,150)
15
(295)
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
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Income taxes payable
Accrued expenses and other current liabilities
Accrued compensation expenses
Contract liabilities
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
Acquisitions of business net
Net cash provided by (used in) investing activities
Financing activities:
Tax withholdings related to net share settlements
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 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 (received) paid for taxes, net
Property and equipment included in accounts payable and in accrued
expenses and other liabilities
2018
For the Years Ended December 31,
2017
2016
$
12,955 $
6,803 $
2,419
4,548
986
73
9,113
298
(137)
(1,548)
(150)
11
332
(398)
(212)
336
(2,025)
(305)
23,877
(5,538)
—
7,600
(370)
1,692
(3,150)
(7,089)
—
—
—
1,005
25,000
(44)
(32,500)
(16,778)
(84)
8,707
25,966
34,673 $
4,636
806
262
6,912
109
895
(7,855)
(1,105)
45
(810)
2,744
(157)
670
1,519
3,175
18,649
(4,137)
(500)
10,900
—
6,263
(3,940)
(8,085)
—
(3)
—
942
—
(50)
(6,250)
(17,386)
(45)
7,481
18,485
25,966 $
2,625 $
(43) $
— $
959 $
4,893
894
308
6,852
60
1,125
3,107
343
(52)
299
722
(987)
40
(1,516)
(162)
18,345
(4,410)
(9,766)
10,560
—
(3,616)
(4,446)
(7,988)
(40,794)
—
(459)
4,192
50,000
(367)
(11,250)
(11,112)
85
3,702
14,783
18,485
711
—
$
$
$
See accompanying Notes to Consolidated Financial Statements
59
TechTarget, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2018, 2017, and 2016
(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 and business 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 and business 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 and business 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 members’ 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 market categories: Security;
Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and
Development; and ANCL Channel.
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 (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. In 2018,
TechTarget modified its PRC operations consolidating its activities with other TechTarget locations. TechTarget (Beijing) Information Technology Consulting
Co. Ltd. (“TTGT Consulting”) and Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which were incorporated under the laws of the People’s Republic
of China (“PRC”), were closed during 2018. 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.
Reclassifications
There were no reclassifications out of accumulated other comprehensive income in the years ended December 31, 2018, 2017, or 2016.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenues, long-
lived assets, goodwill, the allowance for doubtful accounts, stock-based compensation, earnouts, self-insurance accruals, the allocation of purchase price to
intangibles and goodwill, 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.
60
Revenue Recognition
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1,
2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under Topic 605.
Revenue Recognition under Accounting Standards Codification (“ASC”) 605, Revenue Recognition
The Company generates 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.
We recognized revenue from events in the period in which the event occurs. The majority of our events were free to qualified attendees; however, certain
events were based on a paid attendee model. We recognized revenue for paid attendee events upon completion of the event. As previously disclosed, we have
phased out our events product line.
Revenue Recognition under ASC 606, Revenue from Contacts with Customers (“ASC 606”)
The Company generates its revenues from the sale of targeted marketing and advertising campaigns, which it delivers via its network of websites and data
analytic solutions. Revenue is recognized when performance obligations are satisfied by transferring promised goods or services to customers, as determined by
applying a five-step process consisting of: a) identifying the contract, or contracts, with a customer, b) identifying the performance obligations in the contract, c)
determining the transaction price, d) allocating the transaction price to the performance obligations in the contract, and e) recognizing revenue when, or as,
performance obligations are satisfied.
The Company’s offerings consist of:
IT Deal Alert provides a suite of products that leverages 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. We provide this insight primarily through Priority Engine TM ,
TargetROI TM , Qualified Sales Opportunites TM and Deal Data TM . Revenue from Priority Engine allows customers access to purchase intent data through the life
of the contract and is recognized ratably over the contract period. Target ROI contains Priority Engine as well as other duration based solutions, which are
discussed below, and revenue from Target ROI is recognized ratably over the contract period using the same time-based measure of progress for each of the distinct
performance obligations included within TargetROI. In determining whether products and services are considered distinct performance obligations that should be
accounted for separately versus together may require significant judgment. Revenue from Qualified Sales Opportunities, Deal Data and Research is recognized at
the point in time when control is transferred to the customer, which occurs when the related reports are provided to the customer.
Core Online consists primarily of demand solutions, brand solutions, and custom content. Demand solutions offerings provide the Company’s customers the
opportunity to maximize return on investment by capturing sales leads from the distribution and promotion of content to its audience. Demand solutions may
contain the following components: White Papers, Webcasts, Podcasts, Videocasts and Virtual Trade Shows, and Content Sponsorship, which the Company may
utilize at its discretion. Brand Solutions provide the Company’s customers to target audiences of IT and business professionals actively researching information
related to their products and services. This can be accomplished through on-network or off-network branding as well as through the hosting of Microsites. The
Company will at times create white papers, case studies, webcasts, or videos to our customers’ specifications through its Custom Content team (“custom content”).
Revenue from brand and demand solutions is primarily recognized when the transfer of control occurs. Certain of the contracts within brand and demand
solutions are duration-based campaigns which, in the event of customer cancellation, provide the Company with an enforceable right to a proportional payment for
the portion of the campaign based on services provided. Accordingly, revenue from duration-based campaigns are recognized using a time-based measure of
progress, which the Company believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously transferred
throughout the contract period. Revenue from Microsites is recognized ratably over the life of the contract. Revenue from custom content creation is recognized
over the expected period of performance using a single measure of progress, typically based on hours incurred.
To determine standalone selling price for the individual performance obligations in the arrangement, the Company uses an estimate of the observable selling
prices in separate transactions. The Company establishes best estimates considering multiple factors including, but not limited to, class of client, size of transaction,
available inventory, pricing strategies and market conditions. The Company uses a range of amounts to estimate stand-alone selling price when it sells the goods
and services separately and needs to determine whether a discount is to be allocated based upon the relative stand-alone selling price to the various goods and
services. J udgment is required to determine the standalone selling price for each distinct performance obligation.
61
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 4 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 5.
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 eighteen months to
seventeen 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 defined by ASC 350, to its carrying value to determine the amount of the impairment loss, if any.
As of December 31, 2018, 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, 2018 or 2017.
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, 2018, 2017, and 2016.
Year ended December 31, 2016
Year ended December 31, 2017
Year ended December 31, 2018
Balance at
Beginning
of Year
Provision
Acquired in
Business
Combinations
Write-offs,
Net of
Recoveries
Balance at
End of
Year
$
$
$
1,715 $
1,961 $
1,783 $
894
806
986
— $
— $
— $
(648) $
(984) $
(670) $
1,961
1,783
2,099
62
Property and Equipment and Other Capitalized Assets
Property and equipment and other capitalized assets are stated at cost. Property and equipment acquired through acquisitions of businesses are initially
recorded at fair value. Depreciation is calculated on the straight-line method based on the month the asset is placed in service over the following estimated useful
lives:
Furniture and fixtures
Computer equipment and software
Internal-use software and website development costs
Leasehold improvements
Property and equipment and other capitalized assets consist of the following:
Estimated Useful Life
5 - 10 years
3 years
3 - 5 years
Shorter of useful life or remaining duration of lease
Furniture and fixtures
Computer equipment and software
Leasehold improvements
Internal-use software and website development costs
Less: accumulated depreciation and amortization
As of December 31,
2018
2017
1,266 $
4,201
3,844
29,692
39,003
(28,102)
10,901 $
1,554
3,863
2,887
26,702
35,006
(25,220)
9,786
$
$
Depreciation expense was $4.4 million, $4.5 million, and $4.1 million for the years ended December 31, 2018, 2017, and 2016, 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 $1.5 million,
$0.6 million, and $1.1 million of fully depreciated assets that were no longer in service during 2018, 2017, and 2016, 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, assesses the ongoing value of capitalized assets, or
determines 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 $3.0 million, $2.9 million, and $2.8 million for the years ended December 31, 2018, 2017, and 2016, 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 one management to be probable in the Company’s accounts receivable.
63
At December 31, 2018, no customer represented 10% of total accounts receivable. One single customer represented 10% of total accounts receivable at
December 31, 2017. No single customer accounted fo r 10% or more of total revenues in the years ended December 31, 2018, 2017, or 2016.
Income Taxes
The Company’s deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of
assets and liabilities using statutory rates. A valuation allowance is established against net deferred tax assets if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be realized. The Company records a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax return using a “more likely than not” threshold as required by the provisions of ASC 740-10,
Accounting for Uncertainty in Income Taxes (“ASC 740”).
The Company recognizes interest and penalties related to unrecognized tax benefits, if any, in income tax expense.
Stock-Based Compensation
The Company has stock-based employee compensation plans which are more fully described in Note 11. 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 Income 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, 2018, 2017, or 2016.
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 units outstanding during the
period. Because the holders of unvested restricted stock units do not have non-forfeitable rights to dividends or dividend equivalents, the Company does not
consider these restricted stock units 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 units outstanding during the
period, plus the dilutive effect of potential future issuances of common stock relating to stock option and restricted stock unit programs using the treasury stock
method. In calculating diluted earnings per share, the dilutive effect of stock options and restricted stock units 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 of stock options and
restricted stock units 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 units.
64
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 units outstanding
Diluted:
Weighted average shares of common stock and vested,
undelivered restricted stock units outstanding
Effect of potentially dilutive shares
Total weighted average shares of common stock and vested,
undelivered restricted stock units 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)
For the Years Ended December 31,
2017
2016
2018
$
12,955 $
6,803 $
2,419
27,738,178
27,550,044
29,953,798
27,678,959
973,855
27,550,044
721,340
29,953,798
819,734
28,652,814
28,271,384
30,773,532
$
$
$
$
12,955 $
27,738,178
6,803 $
27,550,044
2,419
29,953,798
0.47 $
0.25 $
0.08
12,955 $
28,652,814
6,803 $
28,271,384
2,419
30,773,532
0.45 $
0.24 $
0.08
(1)
In calculating diluted earnings per share, 0.5 million, 0.7 million, and 1.3 million shares related to outstanding stock options and unvested, undelivered
restricted stock units were excluded for the years ended December 31, 2018, 2017, and 2016, respectively, because they were anti-dilutive.
Recent Accounting Pronouncements
Accounting Guidance Adopted in 2018
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.
The standard may be applied retrospectively to each prior period presented, or using the modified retrospective approach, with the cumulative effect
recognized as of the date of initial application. The Company adopted the standard effective January 1, 2018, using the modified retrospective approach (see Note
3).
Accounting Guidance Not Yet Adopted as of December 31, 2018
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases . The core principle
of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. In July 2018, the FASB issued ASU
2018-10, Codification Improvements to Topic 842 (Leases) , ASU 2018-11, and ASU 2018-20, Leases (collectively, Topic 842), Targeted Improvements ("ASU
2018-11"), which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method
to adopt the new standard, and (iii) lessors with a practical expedient for separating components of a contract. ASU 2018-11 specifically permits an entity to elect
an additional transition method to the existing modified retrospective transition requirements. Under the new transition method, an entity could adopt the provisions
of ASU No. 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the
financial
65
statements for periods prior to adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in which it adopts the
new leases standard will continue to be in accordance with the previous le ase guidance in ASC 840. ASU No. 2018-11 also allows a practical expedient that
permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. All of these ASUs related to ASC Topic
842 are effec tive for annual periods and interim periods within those annual periods beginning after December 15, 2018, and is effective for the Company for the
year ending December 31, 2019. The Company is adopting ASU 2016-02 using the modified retrospective method, upon its effective date of January 1, 2019. The
Company is electing the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the
Company to carryforward the historical lease class ification for all leases in effect at adoption. The Company will make an accounting policy election to keep leases
with an initial term of 12 months or less off of the consolidated balance sheet and will recognize those lease payments in the consolidated s tatements of income
and comprehensive income on a straight-line basis over the lease term. We are substantially complete with our evaluation of the effect that the adoption of this
ASU will have on our financial statements. We believe that most of our ope rating lease commitments will be subject to the new standard. In connection with the
adoption of ASC 842, we expect to recognize additional right-of-use assets and operating lease liabilities of within a range of approximately $28 million to $32
million on January 1, 2019, with no material impact to our Consolidated Statements of Income and Comprehensive Income.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU
2017-04"). ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (step 2 of the
goodwill impairment test) and instead requires only a one-step quantitative impairment test, performed by comparing the fair value of goodwill with its carrying
amount. ASU 2017-04 is effective on a prospective basis effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption
is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that this guidance will
have on its consolidated financial statements and disclosures.
3. Revenue
Disaggregation of Revenue
The following table depicts the disaggregation of revenue according to categories consistent with how the Company evaluates its financial performance:
Total Online
Total Online by Geographic Area:
North America:
North America IT Deal Alert
North America Core Online
Total North America Online
International:
International IT Deal Alert
International Core Online
Total International Online
Total Online by Product:
IT Deal Alert:
North America IT Deal Alert
International IT Deal Alert
Total IT Deal Alert
Core Online:
North America Core Online
International Core Online
Total Core Online
Total Events
Total Revenues
2018
Year Ended December 31,
2017
2016
121,333 $
108,388 $
101,827
43,342 $
39,318
82,660
36,622 $
36,586
73,208
15,707
22,966
38,673
43,342
15,707
59,049
39,318
22,966
62,284
—
121,333 $
12,907
22,273
35,180
36,622
12,907
49,529
36,586
22,273
58,859
168
108,556 $
25,743
43,296
69,039
5,661
27,127
32,788
25,743
5,661
31,404
43,296
27,127
70,423
4,798
106,625
$
$
$
66
Contract liabilities
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to the Company’s contracts with
customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. Contract liabilities on the accompanying
Consolidated Balance Sheets was $5.6 million and $7.6 million (prior to the adjustment for ASC 606) at December 31, 2018 and December 31, 2017, respectively.
The Company’s adoption of ASC 606 reduced the Company’s deferred revenue by $3.5 million as of January 1, 2018. Additionally, certain customers may receive
credits, which are accounted for as a material right. The Company estimates these amounts based on the expected amount of future services to be provided to
customers and allocates a portion of the transaction price to these material rights. The Company recognizes these material rights as the material rights are exercised.
The resulting amounts included in contract liabilities on the accompanying Consolidated Balance Sheets were $3.5 million and $2.7 million at December 31, 2018
and December 31, 2017, respectively.
Reconciliation of Account Receivable and Contract Liabilities as a result of the adoption of ASC 606:
Year-to-Date Activity
Balance Accounts Receivable December 31,2017 prior to adoption of ASC 606
Adjustment to accounts receivable as a result of adoption of ASC 606
Balance at January 1, 2018
Year-to-Date Activity
Balance Deferred Revenue December 31,2017 prior to adoption of ASC 606
Adjustment to deferred revenue as a result of adoption of ASC 606
Balance at January 1, 2018
Deferral of revenue
Recognition of previously unearned revenue
Balance at December 31,2018
The Company elected to apply the following practical expedients:
Existence of a Significant Financing Component in a Contract
Accounts Receivable
(in thousands)
29,601
3,510
26,091
Contract Liabilities
(in thousands)
7,598
3,510
4,088
5,573
4,088
5,573
$
$
$
$
As a practical expedient, the Company has not assessed whether a contract has a significant financing component because the Company expects at contract
inception that the period between payment by the customer and the transfer of promised goods or services by the Company to the customer will be one year or less.
Payment terms and conditions vary by contract type, although terms generally include requirement of payment within 30 to 90 days. In addition, the Company has
determined that the payment terms that the Company provides to its customers are structured primarily for reasons other than the provision of finance to the
customer.
Costs to Fulfill a Contract
The Company’s revenues are primarily generated from customer contracts that are for one year or less. Costs primarily consist of incentive compensation
paid based on the achievements of sales targets in a given period for related revenue streams and are recognized in the month when the revenue is earned. As a
practical expedient, for amortization periods which are determined to be one year or less, the Company expenses any incremental costs of obtaining the contract
with a customer when incurred. For those customer contracts greater than one year, the Company capitalizes and amortizes the expenses over the period of benefit.
Revenues Invoiced
The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts
with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice
for services performed.
4. 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:
67
•
•
•
Level 1. Quoted prices in active markets for iden tical 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:
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2018
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
$
$
$
$
15,070 $
500
—
15,570 $
15,070 $
—
—
15,070 $
— $
500
—
500 $
Fair Value Measurements at
Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2017
7,155 $
7,650
496
15,301 $
7,155 $
—
—
7,155 $
— $
7,650
496
8,146 $
—
—
—
—
—
—
—
—
(1)
(2)
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.
5. 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.
68
Oceanos Marketing, Inc.
The Company made a small, non-material acquisition on August 1, 2018 acquiring substantially all of the operating assets of Oceanos Marketing, Inc. which
is a Massachusetts-based contact data management company for $0.6 million.
6. Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Cash equivalents are carried at
cost, which approximates their fair market value. Cash and cash equivalents consisted of the following:
Cash
Money market funds
Total cash and cash equivalents
As of December 31,
2018
2017
$
$
19,603 $
15,070
34,673 $
18,811
7,155
25,966
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 $15, $17 and $30 as of December 31, 2018, 2017, and 2016, respectively. Realized gains and losses on the sale of these
investments are determined using the specific identification method. There were no realized gains or losses in 2018, 2017, or 2016.
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:
U.S. Treasury securities
Government agency bonds
Municipal bonds
Corporate bonds
Total short-term and long-term investments
Amortized
Cost
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
$
500 $
—
—
—
500 $
— $
—
—
—
— $
— $
— $
— $
— $
— $
500
—
—
—
500
Amortized
Cost
$
$
1,499 $
1,003
4,169
1,502
8,173 $
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
— $
—
—
—
— $
(6) $
(4) $
(14) $
(3) $
(27) $
1,493
999
4,155
1,499
8,146
The Company had no debt securities in an unrealized loss position at December 31, 2018. At December 31, 2017, the Company had 15 debt securities in an
unrealized loss position, and the unrealized loss on those securities was approximately $27 and the fair value was $8.1 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, 2018.
At December 31, 2018 the US treasury security had a maturity date of January 2019. All income generated from these investments is recorded as interest
income.
69
7. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows:
Balance as of beginning of year
Effect of exchange rate changes
Additions
Balance as of end of year
As of December 31,
2018
2017
93,793 $
(202)
96
93,687 $
93,469
324
—
93,793
$
$
8. Intangible Assets
The following table summarizes the Company’s intangible assets, net:
Customer, affiliate and advertiser relationships
Developed websites, technology and patents
Trademark, trade name and domain name
Proprietary user information database and internet traffic
Non-Compete agreement
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
Total intangible assets
Estimated
Useful Lives
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
As of December 31, 2018
5-17 $
10
5-8
5
1.5
$
6,500 $
1,502
1,784
1,110
10
10,906 $
(6,256)
(958)
(1,730)
(1,110)
(3)
(10,057) $
Estimated
Useful Lives
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
As of December 31, 2017
5 $
10
8
5
$
6,938 $
1,342
1,802
1,202
11,284 $
(6,938) $
(907)
(1,731)
(1,202)
(10,778) $
244
544
54
—
7
849
—
435
71
—
506
Intangible assets are amortized over their estimated useful lives, which range from eighteen months to seventeen 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 5.17 years. Amortization expense was $0.1 million, $0.2 million, and $0.8 million for the years ended December 31, 2018, 2017, and 2016,
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 $0.7 million fully amortized intangible assets in 2018. The
Company did not write off any intangible assets in 2017. The Company wrote off $0.1 million of fully amortized intangible assets in 2016.
The Company expects amortization expense of intangible assets to be as follows:
Years Ending December 31:
2019
2020
2021
2022
2023
Amortization
Expense
133
113
129
159
315
849
$
$
9. Loan Agreement and Prior Term Loan Agreement
On May 9, 2016, the Company entered into a Senior Secured Credit Facilities Credit Agreement for a term loan (the “Term Loan Agreement”). Under the
Term Loan Agreement, the Company borrowed and received $50.0 million in aggregate principal
70
amount pursuant to a five-year t erm 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.
On June 22, 2017, the Company entered into a First Amendment to the Term Loan Agreement (the “First Amendment”). The First Amendment amended the
existing Term Loan Agreement by, among other things, modifying the consolidated leverage ratio covenant and the liquidity requirement related to capital stock
repurchases. Upon effectiveness of the First Amendment, the Company’s total consolidated leverage ratio (calculated in accordance with the Term Loan
Agreement) could not be greater than 2.50 to 1.00 until the quarter ending March 31, 2018, with stepdowns thereafter to a maximum ratio of 1.50 to 1.00 for
quarters ending on or after March 31, 2020. In addition, the minimum liquidity requirement (calculated in accordance with the Term Loan Agreement) with respect
to any capital stock repurchased using borrowings under the Term Loan Agreement was increased from $10.0 million to $15.0 million.
Interest expense under the Term Loan Agreement was $1.4 million in 2018 and 2017, respectively, which includes non-cash interest expense of $0.3 million
and $0.1 million in 2018 and 2017, respectively, related to the amortization of deferred issuance costs. At the Company’s option, the Term Loan Agreement bore
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%. During 2018, the Company made principal payments totaling $32.5 million. During
2017, the Company made principal payments totaling $6.3 million. On December 24, 2018 the company paid off the remaining balance of the Term Loan.
On December 24, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank (“Western
Alliance”) as the lender. The Loan Agreement provides for a $25 million term loan facility with a maturity date of December 10, 2023 (the “Loan Agreement”).
The borrowings under the 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 (limited, in the case of the stock of certain foreign subsidiaries of the Company, to no more than 65% of the capital stock of such
subsidiaries). The Loan agreement must be repaid quarterly, with applicable interest paid monthly, in the following manner: 1.25% of the initial aggregate
borrowings are due and payable each quarter for the first two loan years, 1.88% of the initial aggregate borrowings are due and payable each quarter for the third
loan year, and 2.50% of the initial aggregate borrowings are due and payable each quarter for the fourth and fifth loan years. At maturity, all outstanding amounts,
including unpaid principal and accrued and unpaid interest, under the Loan Agreement will be due and payable.
The borrowings are subject to a leverage ratio, measured quarterly. The Loan Agreement also requires the Company to make representations and warranties
and to comply with certain other covenants and agreements that are customary in loan agreements of this type.
The Loan Agreement will bear interest, on the outstanding daily balance thereof, at a floating per annum rate equal to one and three-eighths percent
(1.375%) above the greater of (a) the one (1) month U.S. LIBOR rate reported in The Wall Street Journal as of such date or (b) two percent (2.00%).
The Loan Agreement required the Company to pay a one-time non-refundable facility fee of $25,000 on the closing date.
The Loan Agreement may be prepaid by the Company at its option without penalty, provided the Company complies with the notice provision of the
document. The Loan Agreement also contains customary events of default, subject to grace periods in certain cases, which may cause repayment of the Term Loan
to be accelerated.
71
Expected future installment payments on the principal by year and amounts included in the Company’s Consolidated Balance Sheet as of December 31,
2018 related to the Loan Agreement are as follows:
Years Ending December 31:
2019
2020
2021
2022
2023
Total principal on loan agreement
Unamortized debt issuance costs
Carrying amount of loan agreement
Less: current portion of loan agreement, net of $9 in unamortized
debt issuance costs
Long-term portion of loan agreement, net of $36 in unamortized
debt issuance costs
$
1,250
1,250
1,875
2,500
18,125
25,000
(45)
24,955
(1,241)
$
23,714
At December 31, 2018, the Company was in compliance with all covenants under the Loan Agreement.
10. Commitments and Contingencies
Operating Leases
The Company conducts its operations in leased office facilities under various noncancelable operating lease agreements that expire through December 2029.
On October 26, 2017, the Company and Hines Global REIT Riverside Center, LLC (“Hines”) entered into a Third Amendment (the “Third Amendment”) to
the lease agreement for office space in Newton, Massachusetts, dated as of August 4, 2009, by and between the Company and MA-Riverside Project, L.L.C.
(predecessor-in-interest to Hines) as amended (the “Newton Lease”). The Third Amendment extends the lease term to December 31, 2029 and preserves the
Company’s option to extend the term for an additional five-year period subject to certain terms and conditions set forth in the Newton Lease. The Third
Amendment reduces the rentable space from approximately 110,000 square feet to approximately 74,000 square feet effective January 1, 2018 and provides the
Company with a one-time cash allowance of up to $3.3 million, which may be used by the Company for any purpose. Beginning on January 1, 2018, base monthly
rent under the Third Amendment will be $0.3 million. The base rent will increase biennially at a rate averaging approximately 1% per year, beginning on January 1,
2020. The Company remains responsible for certain other costs under the Third Amendment, including operating expense and taxes.
The Newton Lease contains rent concessions, which the Company is receiving over the life of the Newton Lease. Certain of the Company’s operating leases
include lease incentives and escalating payment amounts and are renewable for varying periods. The Company is recognizing the related rent expense on a straight-
line basis over the term of each lease, taking into account the lease incentives and escalating lease payments. Total rent expense under the Company’s leases was
approximately $4.0 million, $4.5 million, and $4.4 million for the years ended December 31, 2018, 2017, and 2016, respectively.
Future minimum lease payments under the Company’s noncancelable operating leases at December 31, 2018 are as follows:
Years Ending December 31:
2019
2020
2021
2022
2023
Thereafter
72
Minimum
Lease
Payments
4,180
3,629
3,721
3,397
3,397
21,267
39,591
$
$
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, 2018 and
2017, 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.
11. Stock-Based Compensation
Stock Option and Incentive Plans
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. The 2007 Plan allows the Company to grant ISOs, NSOs, stock appreciation
rights, deferred stock awards, restricted stock units and other awards. Under the 2007 Plan, stock options could not be granted at less than fair market value on the
date of grant, and grants generally 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 had the option to direct a net issuance of shares for satisfaction of tax liability with
respect to vesting of awards and delivery of shares. Prior to August 2015, this choice of settlement method was solely at the discretion of the award recipient.
At the inception of the plan, the Company reserved for issuance an aggregate of 2,911,667 shares of common stock under the 2007 Plan, which expired in
May 2017. The 2007 Plan was subject to an automatic annual increase of shares on January 1 of each year, beginning on January 1, 2008, equal to the lesser of (a)
2% of the outstanding number of shares of common stock (on a fully-diluted basis) on the immediately preceding December 31 and (b) such lower number of
shares as may be determined by the compensation committee of the Board. The number of shares available for issuance under the 2007 Plan was subject to
adjustment in the event of a stock split, stock dividend or other change in capitalization. No new awards may be granted under the 2007 Plan; however, the shares
of common stock remaining in the 2007 Plan are available for issuance in connection with previously awarded grants under the 2007 Plan. There are 513,500
shares of common stock, including 130,000 vested restricted stock unit awards that remain subject to outstanding stock grants under the 2007 Plan as of
December 31, 2018.
In March 2017, the Board approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”), which was approved by the stockholders of the Company
at the 2017 Annual Meeting and became effective June 16, 2017. The 2017 Plan replaces the Company’s 2007 Plan. On that date 3,000,000 shares of Common
Stock were reserved for issuance under the 2017 Plan and, generally, shares that are forfeited or canceled from awards under the 2017 Plan also will be available
for future awards. Under the 2017 Plan, the Company may grant restricted stock and restricted stock units, non-qualified stock options, stock appreciation rights,
performance awards, and other stock-based and cash-based awards. Grants generally vest in equal tranches over a three-year period. Stock options granted under
the 2017 Plan expire no later than ten years after the grant date. Shares of stock issued pursuant to restricted stock awards are restricted in that they are not
transferable until they vest. Stock underlying awards of restricted stock units are not issued until the units vest. Non-qualified stock options cannot be exercised
until they vest. Under the 2017 Plan, all stock options and stock appreciation rights must be granted with an exercise price that is at least equal to the fair market
value of the stock on the date of grant. The 2017 Plan broadly prohibits the repricing of options and stock appreciation rights without stockholder approval and
requires that no dividends or dividend equivalents be paid with respect to options or stock appreciation rights. The 2017 Plan further provides that, in the event any
dividends or dividend equivalents are declared with respect to restricted stock, restricted stock units, other stock-based awards and performance awards (referred to
as “full-value awards”), they would be subject to the same vesting and forfeiture provisions as the underlying award. There is a total of 999,761 shares of common
stock that are subject to outstanding stock grants under the 2017 Plan as of December 31, 2018.
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
2018
Years Ended December 31,
2017
39%
43%
6 years
6 years
2.82%
—%
$
11.94
1.87%
—%
$
4.61
2016
46%
6 years
1.90%
—%
3.91
$
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
73
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 based on historical averages 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, 2018 is presented below:
Options outstanding at December 31, 2017
Granted
Exercised
Forfeited
Canceled
Options outstanding at December 31, 2018
Options exercisable at December 31, 2018
Options vested or expected to vest at
December 31, 2018
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Term
in Years
Aggregate
Intrinsic
Value
6.41
28.42
5.64
—
—
9.50
7.22
$
2,704
4.32 $
3.70 $
828
828
Options
Outstanding
344,090 $
20,000
(178,090)
—
—
186,000 $
166,000 $
184,108 $
9.31
4.26 $
828
During the years ended December 31, 2018, 2017, and 2016, 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 $2.7 million, $0.9 million, and $1.9 million, respectively, and the total
amount of cash received by the Company from exercise of these options was $1.0 million, $0.9 million, and $4.2 million, respectively.
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 Company’s plans for the year ended December 31, 2018 is presented below:
Nonvested outstanding at December 31, 2017
Granted
Vested
Forfeited
Nonvested outstanding at December 31, 2018
Weighted-
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
9.37
27.59
9.26
9.57
17.69 $
14,619
Shares
1,414,000 $
542,202
(752,941)
(6,000)
1,197,261 $
The total grant-date fair value of restricted stock unit awards that vested during the years ended December 31, 2018, 2017, and 2016 was $7.0 million, $7.1
million, and $7.4 million, respectively.
As of December 31, 2018, there was $17.9 million of total unrecognized compensation expense related to stock options and restricted stock units, which is
expected to be recognized over a weighted average period of 1.8 years.
12. 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.
74
The Tender Offer expired on June 8, 2016. In accord ance 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 a s
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 conn ection 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 sto ck 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 vot ing 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
On November 7, 2018 the Company announced the November 2018 Stock Repurchase plan to repurchase shares up to an aggregate amount of $25.0 million
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 at
prices and in a manner that may be determined by management. The Company repurchased 243,425 shares at an aggregate purchase price of $3.1 million at an
average share price of $12.82 during the fourth quarter under the November 2018 Stock Repurchase plan.
In June 2016, the Company announced that the Board had authorized a $20.0 million stock repurchase program (the “June 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 at
prices and in the manner that may be determined by the Board. Pursuant to the June 2016 Repurchase Program, the Company repurchased 211,729, 749,437 and
980,329 shares of common stock for an aggregate purchase price of $3.9 million, $8.1 million and $8.0 million in 2018, 2017 and 2016 respectively. On May 5,
2017, the Board reauthorized the June 2016 Repurchase Program to allow the Company to use the remaining balance of the unused authorization under such
program after its original expiration date in June 2017. For all or a portion of the authorized repurchase amount, the Company may enter into one or more plans
that are compliant with Rule 10b5-1 of the Securities Exchange Act of 1934 that are designed to facilitate these purchases. In August 2018, the June 2016
Common Stock Repurchase plan expired.
Repurchased shares are recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets.
Reserved Common Stock
As of December 31, 2018, the Company has reserved 3,334,912 shares of common stock for use in settling outstanding options and unvested restricted stock
units that have not been issued, as well as future awards available for grant under the 2007 and 2017 Plans.
13. Income Taxes
Income before provision for income taxes was as follows:
U.S.
Foreign
Income before income taxes
2018
Years Ended December 31,
2017
2016
$
$
11,917
2,926
14,843
$
$
9,435 $
282
9,717 $
3,351
1,666
5,017
75
The income tax provision for the years ended December 31, 2018, 2017, and 2016 consisted of the following:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
2018
Years Ended December 31,
2017
2016
$
1,540 $
540
(55)
2,025
(65)
(53)
(19)
(137)
1,543 $
419
57
2,019
598
382
(85)
895
$
1,888 $
2,914 $
1,627
(569)
415
1,473
1,592
(21)
(446)
1,125
2,598
On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant
changes to the Internal Revenue Code of 1986, as amended. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax
years beginning after December 31, 2017.The Act also provided for a mandatory one-time tax on the deemed repatriation of accumulative foreign earnings of
foreign subsidiaries as of December 31 (the ‘Transition Tax’), a tax on global intangible low-taxed income (‘GILTI’) for tax year beginning after December
31,2017, and modified the rules on the deduction for executive compensation, We have calculated our best estimate of the impact of the Act in our year end income
tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant
does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Act. In accordance with SAB 118, the Company recorded an estimated $45 of current tax expense at December 31, 2017 in connection
with the Transition Tax. In the first quarter of 2018 the Company performed additional analysis of historical foreign earnings and as a result recorded an immaterial
adjustment to the transition tax. The Company completed its analysis in the fourth quarter of 2018 with no further adjustment, and reported a total transition tax of
$31 on their Federal tax return. In addition, we have elected to account for GILTI as a period cost.
The income tax provision for the years ended December, 31, 2018, 2017 and 2016 differs from the amounts computed by applying the statutory federal
income tax rate to 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
Subsidiary earnings taxed in the US
True-up of prior year returns
Research and development credit
Tax Cuts and Jobs Act of 2017
Cancellation of Foreign Subsidiary Debt
Other
Provision for income taxes
$
76
2018
Years Ended December 31,
2017
2016
$
3,116 $
3,401 $
1,757
93
(2)
(1,708)
252
198
396
23
(104)
(20)
(279)
(11)
(127)
61
1,888 $
37
(12)
(304)
(101)
447
653
4
127
(161)
(801)
(376)
—
—
2,914 $
(146)
(21)
315
67
738
(380)
1
253
11
—
—
—
3
2,598
Significant components of the Company’s net deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
Contract liabilities
Accruals and allowances
Stock-based compensation
Deferred rent expense
Other
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 liabilities
As reported:
Non-current deferred tax assets
Non-current deferred tax liabilities
As of December 31,
2018
2017
33 $
—
1,253
1,286
1,267
4
3,843
(33)
3,810
(2,603)
(1,814)
(4,417)
(607) $
55 $
(662) $
166
187
972
815
1,327
4
3,471
(352)
3,119
(2,036)
(1,823)
(3,859)
(740)
98
(838)
$
$
$
$
In evaluating the ability to realize the net deferred tax liability, 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, as well as changes in tax rates, may
materially impact income tax expense for the period.
The deferred tax assets relating to the foreign net operating losses (“NOLs”) are fully offset by a valuation allowance. The valuation allowance of $33 and
$0.4 million at December 31, 2018 and 2017 respectively, relates primarily to foreign 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 by$320, $91, and $85 during the years ended
December 31, 2018, 2017, and 2016, respectively. To the extent realization of the deferred tax assets for NOLs becomes more likely than not, recognition of these
acquired tax benefits would reduce income tax expense. As of December 31, 2018, the Company had a NOL carryforward of approximately $0.2 million, which
may be used to offset future taxable income in foreign jurisdictions indefinitely.
The Company had no unrecognized tax benefits at December 31, 2018. It is not expected that the amount of unrecognized tax benefits will change
significantly within the next twelve months.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2018, 2017, and 2016 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
2018
2017
2016
$
$
— $
—
—
—
— $
— $
—
—
—
— $
184
(188)
—
4
—
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 2014, except to the extent of NOL and tax credit carryforwards from those
years. Major taxing jurisdictions include the U.S., both federal and state. As of December 31, 2018, the Company also had foreign NOL carryforwards of $0.2
million, which may be used to offset future taxable income in foreign jurisdictions indefinitely. The deferred tax assets related to the foreign NOL carryforwards
have been fully offset by a valuation allowance.
77
The Company considers the excess of its financial repo rting over its tax basis in investments in foreign subsidiaries essentially permanent in duration and as
such has not recognized deferred tax liability related to this difference. Undistributed earnings of the Company’s foreign subsidiaries amounted to app roximately
$7.0 million as of December 31, 2018. 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.
14. Segment Information
The Company views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations
and how its executive management team reviews results and makes decisions on how to allocate resources and assess performance.
Geographic Data
Net sales to unaffiliated customers by geographic area were as follows:
United States
United Kingdom
Other International
Total
Long-lived assets by geographic area were as follows:
U.S.
International
Total
2018
Years Ended December 31,
2017
2016
$
$
89,340 $
14,391
17,602
121,333 $
77,982 $
12,544
18,030
108,556 $
79,535
9,944
17,146
106,625
Years Ended December 31,
2017
2018
$
$
101,051 $
4,386
105,437 $
98,683
5,402
104,085
Net sales to unaffiliated customers by geographic area are based on the customers’ current billing addresses, and does not consider the geo-targeted (target
audience) location of the campaign. Long-lived assets are comprised of property and equipment, net; goodwill; and intangible assets, net. No single country outside
of the U.S. accounted for 10% or more of the Company’s long-lived assets during either of these periods.
15. 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 $3 in 2018 and
$2 for 2017 and 2016. The Company contributed $1.1 million, $0.9 million and $0.9 million to the Plan for each of the years ended December 31, 2018, 2017, and
2016 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.
78
Item 9.
Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
The Company is required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports
under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s (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, 2018, 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, 2018. 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 2018 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.
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, 2018, 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, 2018, which is included herein.
79
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
TechTarget, Inc.
Newton, Massachusetts
Opinion on Internal Control over Financial Reporting
We have audited TechTarget, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheets of the Company and subsidiaries as of December 31, 2018 and 2017, 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, 2018, and the related notes and our report dated March 12, 2019
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
/s/ BDO USA, LLP
Boston, Massachusetts
March 12, 2019
80
Item 9B.
Other Information
None.
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item concerning directors and executive officers is incorporated herein by reference under the headings to be titled
“Election of Class III Directors” and “Information About Corporate Governance” in our definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the Company’s 2019 Proxy Statement (the “Proxy Statement”). The Proxy Statement is expected to be filed no later than 120 days
after the end of our fiscal year ended December 31, 2018 in connection with the solicitation of proxies for the Company’s 2019 annual meeting of stockholders.
The information required by this item with respect to Section 16(a) of the Exchange Act is incorporated herein by reference from the section to be titled
“Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement.
Code of Ethics
The Company has a Code of Business Conduct and Ethics that applies to all of our employees, officers (including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions) as well as the members of the Board of Directors of the
Company. The code is available at investor.techtarget.com/govdocs . We will make any required disclosure of future changes to the code, or waivers of such
provisions, on the same website .
Item 11 .
Executive Compensation
The information required by this item will be set forth under the headings to be titled “Director Compensation,” “Executive Compensation,” and
“Compensation Committee Report” in our Proxy Statement and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth under the headings to be titled “Stock Ownership of Certain Beneficial Owners and Management”
and “Compensation Committee Report” in our Proxy Statement and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth under the headings to be titled “Information about Corporate Governance” and “Certain Relationships
And Related Party Transactions” in our Proxy Statement and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item will be set forth under the heading to be titled “Independent Registered Public Accounting Firm” in our Proxy
Statement and is incorporated herein by reference.
81
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, 2018 and 2017
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
(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.
82
10.1
10.2
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
EXHIBIT IND EX
Exhibit
Number
Description
3.1
3.2
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.
Incorporated by Reference to
Filing
Date
with SEC
SEC File
Number
10-Q
S-1/A
3.1
3.3
11/13/2007
001-33472
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
Material Contracts
Second Amended and Restated Investors’ Rights Agreement by and among the
Registrant, the Investors named therein and SG Cowen Securities Corporation, dated
as of December 17, 2004
Form of Indemnification Agreement between the Registrant and its Directors and
Officers
2007 Stock Option and Incentive Plan
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
10.1
2/07/2007
333-140503
S-1/A
10.2
5/15/2007
333-140503
S-1/A
S-1/A
10.3
10.4
4/20/2007
333-140503
4/20/2007
333-140503
S-1/A
10.5
4/20/2007
333-140503
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors
S-1/A
10.5.1
4/27/2007
333-140503
Form of Restricted Stock Agreement under the 2007 Stock Option and Incentive Plan
S-1/A
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#
10.14#
10.15#
10.16#
10.17#
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants prior to September 27, 2006)
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants on or after September 27, 2006)
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants to executives)
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
83
10-K
10-K
10.6
10.8
4/20/2007
333-140503
3/31/2008
001-33472
10.9
3/31/2008
001-33472
10-K
10.10
3/31/2008
001-33472
10-K
10.13
3/31/2008
001-33472
S-1
S-1
S-1
10.8
10.9
2/07/2007
333-140503
2/07/2007
333-140503
10.10
2/07/2007
333-140503
S-1/A
10.10.1
5/01/2007
333-140503
S-1
10.11
2/07/2007
333-140503
10-K
10.25
3/31/2008
001-33472
Exhibit
Number
10.18#
10.19#
10.20
10.21
10.22#
10.23#
10.24#
10.25#
10.26
10.27
10.28#
10.29#
10.30
10.31#
Description
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 )
Purchase Agreement between the Company and TCV V, LP and TCV Member Fund,
LP, dated December 9, 2014
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)
10.32#
2017 Stock Option and Incentive Plan
10.33#
Form of Restricted Stock Unit Agreement
10.34#
Form of Stock Option Agreement
10.35
10.36
First Amendment to Credit Agreement with Silicon Valley Bank
Third 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 October 26, 2017
Form or
Schedule
Exhibit
No.
Incorporated by Reference to
Filing
Date
with SEC
SEC File
Number
10-K
10.26
3/31/2008
001-33472
10-K
10.28
3/31/2008
001-33472
8-K
8-K
10.1
8/7/2009
001-33472
10.1
11/22/2010
001-33472
10-K
10.33
3/16/2011
001-33472
8-K
10.1
1/10/2012
001-33472
10-K
10.36
3/15/2012
001-33472
10-K
10.37
3/15/2012
001-33472
8-K
10.1
12/9/14
001-33472
10-Q
10.1
11/9/2015
001-33472
8-K
8-K
8-K
8-K
8-K
10-Q
10-Q
8-K
8-K
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
10.1
10.2
10.3
10.1
10.1
6/20/2017
001-33472
8/9/2017
8/9/2017
001-33472
001-33472
6/22/2017
001-33472
10/27/2017
001-33472
10.37#
Transition, Separation and Release Agreement dated July 12, 2018 between the
registrant and Kevin Beam
8-K
10.1
07/12/2018
001-33472
84
Form or
Schedule
Exhibit
No.
Incorporated by Reference to
Filing
Date
with SEC
SEC File
Number
10Q
8-K
10.2
10.1
8/3/2018
001-33472
12/28/2018
001-33472
Exhibit
Number
10.38#
10.39#
Description
Form of Restricted Stock Unit Agreement
Loan and Security Agreement, Dated December 24,2018, by and Between
TechTarget, Inc., as Borrower, and Western Alliance Bank, Lender
*10.40
2018 Executive Incentive Bonus Plan
*21.1
*23.1
*31.1
*31.2
*32.1
List of Subsidiaries
Consent of BDO USA, LLP
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934, as amended.
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934, as amended.
Certification by Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 .
101.INS
XBRL Instance Document (1)
101.SCH
XBRL Taxonomy Extension Schema Document (1)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (1)
*
#
(1)
Filed herewith.
Management contract or compensatory plan or arrangement filed as an Exhibit to this report pursuant to 15(a) and 15(c) of Form 10-K.
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance
Sheets as of December 31, 2018 and December 31, 2017, (ii) Consolidated Statements of Comprehensive Income for the Years ended December 31, 2018,
December 31, 2017 and December 31, 2016, (iii) Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2018, December 31,
2017 and December 31, 2016, (iv) Consolidated Statements of Cash Flows for the Years ended December 31, 2018, December 31, 2017 and December 31,
2016, and (v) Notes to Consolidated Financial Statements.
Item 16.
Form 10-K Summary
None.
85
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.
SIGNA TURES
TECHTARGET, INC.
Date: March 12, 2019
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/ Greg Strakosch
Greg Strakosch
/s/ Robert D. Burke
Robert D. Burke
/s/ Leonard Forman
Leonard Forman
/s/ Bruce Levenson
Bruce Levenson
/s/ Roger M. Marino
Roger M. Marino
Title
Date
Chief Executive Officer and Director
(Principal executive officer)
Chief Financial Officer and Treasurer
(Principal financial and accounting officer)
March 12, 2019
March 12, 2019
Executive Chairman
March 12, 2019
Director
Director
Director
Director
86
March 12, 2019
March 12, 2019
March 12, 2019
March 12, 2019
Exhibit 10.40
2018 Executive Incentive Bonus Plan
1. Purpose
This 2018 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 “Committee”) may
select certain key executives (the “Covered Executives”) to be eligible to receive bonuses hereunder.
3. Administration
The 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 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 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), percentage of revenue under longer-term
contract, or such other metrics as the Committee may determine. For 2018, payment of a bonus pursuant to the Plan will be
based 1/3 on attainment of a Revenue, Adjusted EBITDA, and Percentage of Revenue under Longer-Term Contract (“Longer-
Term Contracts Goal”) target, respectively, as defined and approved by the Committee.
(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 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 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 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
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 with respect to the Revenue or Adjusted EBITDA targets, 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
2018 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.
(f) In order for the Covered Executives to earn a bonus with respect to the Longer-Term Contracts Goal, the Covered
Executives must increase the Longer-Term Contracts Goal base (as determined by the Committee) by a minimum threshold of
1%. For each 1% increase from the Longer-Term Contracts Goal base, Covered Executives will earn 25% of that metric’s
allocation for their targeted bonus amount until 100% of the Longer-Term Contracts Goal is achieved. In the event that the
Longer-Term Contracts Goal is exceeded, as measured as of the fourth quarter of fiscal year 2018, then for each 1% above the
Longer-Term Contracts Goal each Covered Executive will earn an additional 25% to their target bonus amount for the Longer-
Term Contracts Goal. The 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
2018 Executive Incentive Bonus Plan
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
TechTarget, Inc.
List of Subsidiaries
Exhibit 21.1
State/Country
Incorporated
MA
United Kingdom
Hong Kong
China
Australia
Singapore
France
Germany
Employer
ID Number
20-1921630
NA
NA
NA
NA
NA
NA
NA
% Owned
100%
100%
100%
100%
100%
100%
100%
100%
•
Effective December 26, 2018, the entity was no longer a subsidiary.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
TechTarget, Inc.
Newton, Massachusetts
We hereby consent to the incorporation by reference in the Registration Statements on Form S3 (No. 333-181187 and 333-200080) and Form S-8 (No. 333-145785,
333-202051 and 333-219351) of TechTarget, Inc. of our reports dated March 12, 2019, 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 12, 2019
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 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 12, 2019
/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 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 12, 2019
/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
knowledge, the Annual Report of the Company on Form 10-K for the period ended December 31, 2018 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 12, 2019
Date: March 12, 2019
By:
/s/ Michael Cotoia
Michael Cotoia
Chief Executive Officer
By:
/s/ Daniel Noreck
Daniel Noreck
Chief Financial Officer and Treasurer