þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware (State or other jurisdiction of incorporation or organization) |
04-3483216 (I.R.S. Employer Identification No.) |
Large Accelerated Filer o | Accelerated Filer þ | Non-Accelerated Filer o | Smaller Reporting Company o | |||
(Do not check if a smaller reporting company) |
2
Item 1. | Financial Statements |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 25,301 | $ | 32,584 | ||||
Short-term investments |
21,148 | 17,550 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,185 and
$1,026 as of September 30, 2011 and December 31, 2010, respectively |
27,100 | 24,678 | ||||||
Prepaid expenses and other current assets |
2,000 | 1,021 | ||||||
Deferred tax assets |
1,245 | 729 | ||||||
Total current assets |
76,794 | 76,562 | ||||||
Property and equipment, net |
7,836 | 6,235 | ||||||
Long-term investments |
9,844 | | ||||||
Goodwill |
92,528 | 92,382 | ||||||
Intangible assets, net of accumulated amortization |
9,336 | 10,469 | ||||||
Deferred tax assets |
7,907 | 7,985 | ||||||
Other assets |
207 | 125 | ||||||
Total assets |
$ | 204,452 | $ | 193,758 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,662 | $ | 3,797 | ||||
Accrued expenses and other current liabilities |
3,812 | 2,181 | ||||||
Accrued compensation expenses |
1,006 | 1,979 | ||||||
Income taxes payable |
| 226 | ||||||
Deferred revenue |
7,948 | 6,603 | ||||||
Total current liabilities |
16,428 | 14,786 | ||||||
Long-term liabilities: |
||||||||
Other liabilities |
4,471 | 5,112 | ||||||
Total liabilities |
20,899 | 19,898 | ||||||
Commitments and contingencies (Note 9) |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding |
| | ||||||
Common stock, $0.001 par value per share, 100,000,000 shares authorized,
43,660,157 shares issued and 37,802,279 shares outstanding at September 30,
2011 and 42,901,926 shares issued and 37,044,048 shares outstanding at
December 31, 2010 |
44 | 43 | ||||||
Treasury stock |
(35,343 | ) | (35,343 | ) | ||||
Additional paid-in capital |
253,137 | 246,080 | ||||||
Accumulated other comprehensive (loss) income |
(64 | ) | 5 | |||||
Accumulated deficit |
(34,221 | ) | (36,925 | ) | ||||
Total stockholders equity |
183,553 | 173,860 | ||||||
Total liabilities and stockholders equity |
$ | 204,452 | $ | 193,758 | ||||
3
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenues: |
||||||||||||||||
Online |
$ | 21,763 | $ | 18,878 | $ | 66,294 | $ | 58,065 | ||||||||
Events |
4,129 | 3,123 | 10,266 | 10,052 | ||||||||||||
Total revenues |
25,892 | 22,001 | 76,560 | 68,117 | ||||||||||||
Cost of revenues: |
||||||||||||||||
Online(1) |
5,547 | 4,921 | 16,873 | 15,043 | ||||||||||||
Events(1) |
1,488 | 1,149 | 3,607 | 3,459 | ||||||||||||
Total cost of revenues |
7,035 | 6,070 | 20,480 | 18,502 | ||||||||||||
Gross profit |
18,857 | 15,931 | 56,080 | 49,615 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling and marketing(1) |
10,182 | 8,984 | 28,997 | 27,815 | ||||||||||||
Product development(1) |
1,874 | 2,087 | 5,690 | 6,623 | ||||||||||||
General and administrative(1) |
3,105 | 3,567 | 10,362 | 11,671 | ||||||||||||
Restructuring charge |
| | 384 | | ||||||||||||
Depreciation |
692 | 592 | 2,001 | 1,759 | ||||||||||||
Amortization of intangible assets |
955 | 1,126 | 3,030 | 3,401 | ||||||||||||
Total operating expenses |
16,808 | 16,356 | 50,464 | 51,269 | ||||||||||||
Operating income (loss) |
2,049 | (425 | ) | 5,616 | (1,654 | ) | ||||||||||
Interest income, net |
20 | 79 | 32 | 270 | ||||||||||||
Income (loss) before provision for income taxes |
2,069 | (346 | ) | 5,648 | (1,384 | ) | ||||||||||
Provision for income taxes |
1,106 | 266 | 2,942 | 1,122 | ||||||||||||
Net income (loss) |
$ | 963 | $ | (612 | ) | $ | 2,706 | $ | (2,506 | ) | ||||||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | 0.03 | $ | (0.01 | ) | $ | 0.07 | $ | (0.06 | ) | ||||||
Net income (loss) per common share: |
||||||||||||||||
Diluted |
$ | 0.02 | $ | (0.01 | ) | $ | 0.07 | $ | (0.06 | ) | ||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
38,511 | 43,209 | 38,261 | 42,878 | ||||||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Diluted |
40,008 | 43,209 | 40,578 | 42,878 | ||||||||||||
(1) Amounts include stock-based compensation expense as follows: | ||||||||||||||||
Cost of online revenues |
$ | 65 | $ | (38 | ) | $ | 197 | $ | 136 | |||||||
Cost of events revenues |
22 | 23 | 64 | 69 | ||||||||||||
Selling and marketing |
1,149 | 1,708 | 3,389 | 5,172 | ||||||||||||
Product development |
111 | 104 | 317 | 420 | ||||||||||||
General and administrative |
361 | 785 | 1,687 | 3,369 |
4
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Operating Activities: |
||||||||
Net income (loss) |
$ | 2,706 | $ | (2,506 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
5,031 | 5,160 | ||||||
Provision for bad debt |
286 | 74 | ||||||
Amortization of investment premiums |
648 | 1,214 | ||||||
Stock-based compensation expense |
5,654 | 9,166 | ||||||
Deferred tax benefit |
(891 | ) | (1,805 | ) | ||||
Excess tax benefit stock options |
(708 | ) | (211 | ) | ||||
Changes in operating assets and liabilities, net of businesses acquired: |
||||||||
Accounts receivable |
(2,491 | ) | (6,266 | ) | ||||
Prepaid expenses and other current assets |
(977 | ) | 506 | |||||
Other assets |
(82 | ) | 8 | |||||
Accounts payable |
(133 | ) | (120 | ) | ||||
Income taxes payable |
478 | 1,260 | ||||||
Accrued expenses and other current liabilities |
1,580 | (472 | ) | |||||
Accrued compensation expenses |
(973 | ) | 539 | |||||
Deferred revenue |
1,085 | 111 | ||||||
Other liabilities |
(641 | ) | 1,936 | |||||
Net cash provided by operating activities |
10,572 | 8,594 | ||||||
Investing activities: |
||||||||
Purchases of property and equipment, and other assets |
(3,596 | ) | (4,041 | ) | ||||
Purchases of investments |
(31,436 | ) | (38,256 | ) | ||||
Proceeds from sales and maturities of investments |
17,370 | 37,545 | ||||||
Acquisition of businesses |
(2,049 | ) | (1,790 | ) | ||||
Net cash used in investing activities |
(19,711 | ) | (6,542 | ) | ||||
Financing activities: |
||||||||
Excess tax benefitstock options |
708 | 211 | ||||||
Proceeds from exercise of stock options |
1,148 | 663 | ||||||
Net cash provided by financing activities |
1,856 | 874 | ||||||
Net (decrease) increase in cash and cash equivalents |
(7,283 | ) | 2,926 | |||||
Cash and cash equivalents at beginning of period |
32,584 | 20,884 | ||||||
Cash and cash equivalents at end of period |
$ | 25,301 | $ | 23,810 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | | $ | | ||||
Cash paid for taxes |
$ | 3,601 | $ | 1,341 | ||||
5
6
7
| White Papers. White paper revenue is recognized ratably over the period in which the white paper is available on the Companys websites. |
| Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcast, podcast, videocast, virtual trade show and similar content revenue is recognized ratably over the period in which the webcast, podcast, videocast or virtual trade show is available on the Companys websites. |
| Custom Media. Custom media revenue is recognized ratably over the period in which the custom media is available on the Companys websites. |
| Promotional E-mails and E-newsletters. Promotional e-mail revenue is recognized ratably over the period in which the related content is available on its websites because promotional e-mails do not have standalone value from the related content. E-newsletter revenue is recognized in the period in which the e-newsletter is sent. |
| List Rentals. List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members. |
| Banners. Banner revenue is recognized in the period in which the banner impressions occur. |
| Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed. For certain third party agreements where the Company is the primary obligor, revenue is recognized on a gross basis in the period in which the services are performed. |
8
9
| Level 1. Quoted prices in active markets for identical assets and liabilities; | ||
| Level 2. Observable inputs other than quoted prices in active markets; and | ||
| Level 3. Unobservable inputs. |
10
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
September 30, | Assets | Inputs | Inputs | |||||||||||||
2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(Unaudited) | ||||||||||||||||
Money market funds(1) |
$ | 9,823 | $ | 9,823 | $ | | $ | | ||||||||
Short-term investments(2) |
21,148 | | 21,148 | | ||||||||||||
Long-term investments(2) |
9,844 | | 9,844 | | ||||||||||||
Total |
$ | 40,815 | $ | 9,823 | $ | 30,992 | $ | | ||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Money market funds(1) |
$ | 23,375 | $ | 23,375 | $ | | $ | | ||||||||
Short-term investments(2) |
17,550 | | 17,550 | | ||||||||||||
Total |
$ | 40,925 | $ | 23,375 | $ | 17,550 | $ | | ||||||||
(1) | Included in cash and cash equivalents on the accompanying consolidated balance sheets; valued at quoted market prices in active markets. | |
(2) | Our short and long-term investments consist of government agency and municipal bonds; their fair value is calculated using an interest rate yield curve for similar instruments. |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash |
$ | 15,478 | $ | 9,209 | ||||
Money market funds |
9,823 | 23,375 | ||||||
Total cash and cash equivalents |
$ | 25,301 | $ | 32,584 | ||||
September 30, 2011 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Estimated | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(Unaudited) | ||||||||||||||||
Short and long-term investments: |
||||||||||||||||
Municipal bonds |
$ | 30,976 | $ | 27 | $ | (11 | ) | $ | 30,992 | |||||||
Total short and long-term investments |
$ | 30,976 | $ | 27 | $ | (11 | ) | $ | 30,992 | |||||||
11
December 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Estimated | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Short and long-term investments: |
||||||||||||||||
Government agency bonds |
$ | 2,008 | $ | 1 | $ | | $ | 2,009 | ||||||||
Municipal bonds |
15,550 | 2 | (11 | ) | 15,541 | |||||||||||
Total short and long-term investments |
$ | 17,558 | $ | 3 | $ | (11 | ) | $ | 17,550 | |||||||
Estimated Fair | ||||||||
Useful Life | Value (in 000s) | |||||||
Customer relationship |
60 months | $ | 825 | |||||
Member database |
60 months | 512 | ||||||
Non-compete agreement |
24 months | 100 | ||||||
Trade name |
60 months | 430 | ||||||
Total intangible assets |
$ | 1,867 | ||||||
12
As of September 30, 2011 | ||||||||||||||
Estimated | Gross | |||||||||||||
Useful Lives | Carrying | Accumulated | ||||||||||||
(Years) | Amount | Amortization | Net | |||||||||||
(Unaudited) | ||||||||||||||
Customer, affiliate
and advertiser
relationships |
1 - 9 | $ | 8,982 | $ | (4,178 | ) | $ | 4,804 | ||||||
Developed websites |
3 - 6 | 5,400 | (3,975 | ) | 1,425 | |||||||||
Trademark, trade name
and domain name |
1 - 7 | 1,970 | (894 | ) | 1,076 | |||||||||
Proprietary user
information database
and Internet traffic |
3 - 5 | 5,222 | (3,410 | ) | 1,812 | |||||||||
Non-compete agreements |
1 - 3 | 547 | (328 | ) | 219 | |||||||||
Total intangible assets |
$ | 22,121 | $ | (12,785 | ) | $ | 9,336 | |||||||
As of December 31, 2010 | ||||||||||||||
Estimated | Gross | |||||||||||||
Useful Lives | Carrying | Accumulated | ||||||||||||
(Years) | Amount | Amortization | Net | |||||||||||
Customer, affiliate
and advertiser
relationships |
1 - 9 | $ | 12,879 | $ | (7,654 | ) | $ | 5,225 | ||||||
Developed websites |
3 - 6 | 5,400 | (3,300 | ) | 2,100 | |||||||||
Trademark, trade name
and domain name |
1 - 7 | 2,373 | (1,526 | ) | 847 | |||||||||
Proprietary user
information database
and Internet traffic |
3 - 5 | 5,400 | (3,354 | ) | 2,046 | |||||||||
Non-compete agreements |
1 - 3 | 1,573 | (1,322 | ) | 251 | |||||||||
Total intangible assets |
$ | 27,625 | $ | (17,156 | ) | $ | 10,469 | |||||||
Amortization | ||||
Years Ending December 31: | Expense | |||
(Unaudited) | ||||
2011
(October 1st December 31st) |
$ | 946 | ||
2012 |
3,351 | |||
2013 |
1,800 | |||
2014 |
1,405 | |||
2015 |
1,157 | |||
Thereafter |
677 | |||
$ | 9,336 | |||
13
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | 963 | $ | (612 | ) | $ | 2,706 | $ | (2,506 | ) | ||||||
Denominator: |
||||||||||||||||
Basic: |
||||||||||||||||
Weighted average shares of common stock
outstanding |
38,510,512 | 43,209,433 | 38,260,943 | 42,877,631 | ||||||||||||
Diluted: |
||||||||||||||||
Weighted average shares of common stock
outstanding |
38,510,512 | 43,209,433 | 38,260,943 | 42,877,631 | ||||||||||||
Effect of potentially dilutive shares(1) |
1,497,772 | | 2,316,833 | | ||||||||||||
Total weighted average shares of common stock
outstanding |
40,008,284 | 43,209,433 | 40,577,776 | 42,877,631 | ||||||||||||
Net Income (Loss) Per Common Share: |
||||||||||||||||
Basic net income (loss) per common share |
$ | 0.03 | $ | (0.01 | ) | $ | 0.07 | $ | (0.06 | ) | ||||||
Net Income (Loss) Per Common Share: |
||||||||||||||||
Diluted net income (loss) per common share |
$ | 0.02 | $ | (0.01 | ) | $ | 0.07 | $ | (0.06 | ) | ||||||
(1) | In calculating diluted earnings per share, all shares related to outstanding stock options, unvested restricted stock awards and warrants were excluded for the three and nine months ended September 30, 2010 because they were anti-dilutive due to the Companys loss position for those periods. Additionally, outstanding stock options and unvested restricted stock awards having an exercise price in excess of the average market value of the Companys common stock during the respective period were excluded for the three and nine months ended September 30, 2011 because they were anti-dilutive. |
14
Minimum Lease | ||||
Years Ending December 31: | Payments | |||
(Unaudited) | ||||
2011
(October 1st December 31st) |
$ | 1,030 | ||
2012 |
4,084 | |||
2013 |
3,170 | |||
2014 |
3,172 | |||
2015 |
3,191 | |||
Thereafter |
13,957 | |||
$ | 28,604 | |||
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Net income (loss) |
$ | 963 | $ | (612 | ) | $ | 2,706 | $ | (2,506 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized gain (loss) on investments (net of tax
effect of $7, $(13), $12 and $(44), respectively) |
14 | (27 | ) | 23 | (72 | ) | ||||||||||
Unrealized (loss) gain on foreign currency exchange |
(8 | ) | 3 | (92 | ) | (3 | ) | |||||||||
Other comprehensive income (loss) |
6 | (24 | ) | (69 | ) | (75 | ) | |||||||||
Total comprehensive income (loss) |
$ | 969 | $ | (636 | ) | $ | 2,637 | $ | (2,581 | ) | ||||||
15
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
Expected volatility |
79.83 | % | * | 79.41 | % | 78 | % | |||||||||
Expected term |
6.25 years | * | 6.25 years | 6.25 years | ||||||||||||
Risk-free interest rate |
1.54 | % | * | 1.92 | % | 2.85 | % | |||||||||
Expected dividend yield |
0.00 | % | * | 0.00 | % | 0.00 | % | |||||||||
Weighted-average grant date fair value per share |
$ | 4.39 | * | $ | 4.77 | $ | 3.89 |
* | There were no grants during the third quarter of 2010. |
16
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | |||||||||||||||
Options | Exercise Price | Contractual | Aggregate | |||||||||||||
Year-to-Date Activity | Outstanding | Per Share | Term in Years | Intrinsic Value | ||||||||||||
(Unaudited) | ||||||||||||||||
Options outstanding at December 31, 2010 |
7,095,090 | $ | 6.41 | |||||||||||||
Granted |
40,000 | 6.84 | ||||||||||||||
Exercised |
(200,285 | ) | 5.73 | |||||||||||||
Forfeited |
(51,836 | ) | 5.69 | |||||||||||||
Cancelled |
(51,000 | ) | 9.85 | |||||||||||||
Options outstanding at September 30, 2011 |
6,831,969 | $ | 6.41 | 4.9 | $ | 5,377 | ||||||||||
Options exercisable at September 30, 2011 |
5,953,999 | $ | 6.45 | 4.5 | $ | 5,146 | ||||||||||
Options vested or expected to vest at
September 30, 2011 (1) |
6,764,541 | $ | 6.42 | 4.9 | $ | 5,359 | ||||||||||
(1) | In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options. |
Weighted-Ave. | ||||||||||||
Grant Date | ||||||||||||
Fair Value | Aggregate Intrinsic | |||||||||||
Year-to-Date Activity | Shares | Per Share | Value | |||||||||
(Unaudited) | ||||||||||||
Nonvested outstanding at December 31, 2010 |
2,693,453 | $ | 5.92 | |||||||||
Granted |
85,217 | 7.27 | ||||||||||
Vested |
(513,839 | ) | 4.68 | |||||||||
Forfeited |
(119,640 | ) | 6.98 | |||||||||
Nonvested outstanding at September 30, 2011 |
2,145,191 | $ | 5.69 | $ | 12,249 | |||||||
17
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
North America |
$ | 23,508 | $ | 20,913 | $ | 70,174 | $ | 64,675 | ||||||||
International |
2,384 | 1,088 | 6,386 | 3,442 | ||||||||||||
Total |
$ | 25,892 | $ | 22,001 | $ | 76,560 | $ | 68,117 | ||||||||
18
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
19
| White Papers. White papers are technical documents created by IT vendors to describe business or technical problems that are addressed by the vendors products or services. IT vendors pay us to have their white papers distributed to our users and receive targeted promotions on our relevant websites. Prior to viewing white papers, our registered members and visitors supply their corporate contact and qualification 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. IT vendors pay us to sponsor and host webcasts, podcasts, videocasts, virtual trade shows and similar content that bring informational sessions directly to attendees desktops and, in the case of podcasts, directly to their mobile devices. As is the case with white papers, our users supply their corporate contact and qualification information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to the registrant information and visibility before, during and after the event. |
| Promotional E-mails. IT vendors pay us to further target the promotion of their white papers, webcasts, videocasts, podcasts or similar media by including their content in our periodic e-mail updates to the relevant registered users of our websites. Users who have voluntarily registered on our websites receive an e-mail update from us when vendor content directly related to their interests is listed on our sites. |
| List Rentals. We also offer IT vendors the ability to message relevant registered members on topics related to their interests. IT vendors can rent our e-mail and postal lists of registered members using specific criteria such as company size, geography or job title. |
| Contextual Advertising. Our contextual advertising programs associate IT vendor white papers, webcasts, podcasts, virtual trade shows or other content on a particular topic with our related sector-specific content. IT vendors have the option to purchase exclusive sponsorship of content related to their product or category. |
| Third Party Revenue Sharing Arrangements. We have arrangements with certain third parties, including for the licensing of our online content, for the renting of our database of opted-in e-mail subscribers and for which advertising from customers of certain third parties is made available to our website visitors. In each of these arrangements we are paid a share of the resulting revenue. |
20
21
| White Papers. We recognize white paper revenue ratably over the period in which the white paper is available on our websites. |
| Webcasts, Podcasts, Videocasts and Virtual Trade Shows. We recognize webcast, podcast, videocast, virtual trade show and similar content offerings revenue ratably over the period in which the webcast, podcast, videocast, virtual trade show or similar content offering is available on our websites. |
| Promotional E-mails and E-newsletters. We recognize promotional e-mail revenue ratably over the period in which the related content asset is available on our websites because promotional e-mails do not have standalone value from the related content asset. We recognize e-newsletter revenue in the period in which the e-newsletter is sent. |
| List Rentals. List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members. |
| Banners. Banner revenue is recognized in the period in which the banner impressions occur. |
| Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed. For certain third party agreements where we are the primary obligor, revenue is recognized on a gross basis in the period in which the services are performed. |
22
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Expected volatility |
79.83 | % | * | 79.41 | % | 78 | % | |||||||||
Expected term |
6.25 years | * | 6.25 years | 6.25 years | ||||||||||||
Risk-free interest rate |
1.54 | % | * | 1.92 | % | 2.85 | % | |||||||||
Expected dividend yield |
0.00 | % | * | 0.00 | % | 0.00 | % | |||||||||
Weighted-average grant date fair value per share |
$ | 4.39 | * | $ | 4.77 | $ | 3.89 |
* | There were no grants made in the third quarter of 2010. |
23
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||||||
Online |
$ | 21,763 | 84 | % | $ | 18,878 | 86 | % | $ | 66,294 | 87 | % | $ | 58,065 | 85 | % | ||||||||||||||||
Events |
4,129 | 16 | 3,123 | 14 | 10,266 | 13 | 10,052 | 15 | ||||||||||||||||||||||||
Total revenues |
25,892 | 100 | 22,001 | 100 | 76,560 | 100 | 68,117 | 100 | ||||||||||||||||||||||||
Cost of revenues: |
||||||||||||||||||||||||||||||||
Online |
5,547 | 21 | 4,921 | 23 | 16,873 | 22 | 15,043 | 22 | ||||||||||||||||||||||||
Events |
1,488 | 6 | 1,149 | 5 | 3,607 | 5 | 3,459 | 5 | ||||||||||||||||||||||||
Total cost of revenues |
7,035 | 27 | 6,070 | 28 | 20,480 | 27 | 18,502 | 27 | ||||||||||||||||||||||||
Gross profit |
18,857 | 73 | 15,931 | 72 | 56,080 | 73 | 49,615 | 73 | ||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Selling and
marketing |
10,182 | 39 | 8,984 | 41 | 28,997 | 38 | 27,815 | 41 | ||||||||||||||||||||||||
Product development |
1,874 | 7 | 2,087 | 9 | 5,690 | 7 | 6,623 | 10 | ||||||||||||||||||||||||
General and
administrative |
3,105 | 12 | 3,567 | 16 | 10,362 | 14 | 11,671 | 17 | ||||||||||||||||||||||||
Restructuring |
| | | | 384 | 1 | | | ||||||||||||||||||||||||
Depreciation |
692 | 3 | 592 | 3 | 2,001 | 3 | 1,759 | 2 | ||||||||||||||||||||||||
Amortization of
intangible assets |
955 | 4 | 1,126 | 5 | 3,030 | 4 | 3,401 | 5 | ||||||||||||||||||||||||
Total operating
expenses |
16,808 | 65 | 16,356 | 74 | 50,464 | 66 | 51,269 | 75 | ||||||||||||||||||||||||
Operating income
(loss) |
2,049 | 8 | (425 | ) | (2 | ) | 5,616 | 7 | (1,654 | ) | (2 | ) | ||||||||||||||||||||
Interest income, net |
20 | * | 79 | * | 32 | * | 270 | * | ||||||||||||||||||||||||
Income (loss) before
provision for income
taxes |
2,069 | 8 | (346 | ) | (2 | ) | 5,648 | 7 | (1,384 | ) | (2 | ) | ||||||||||||||||||||
Provision for income
taxes |
1,106 | 4 | 266 | 1 | 2,942 | 4 | 1,122 | 2 | ||||||||||||||||||||||||
Net income (loss) |
$ | 963 | 4 | % | $ | (612 | ) | (3 | )% | $ | 2,706 | 4 | % | $ | (2,506 | ) | (4 | )% | ||||||||||||||
* | Not meaningful |
24
Three Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Revenues: |
||||||||||||||||
Online |
$ | 21,763 | $ | 18,878 | $ | 2,885 | 15 | % | ||||||||
Events |
4,129 | 3,123 | 1,006 | 32 | ||||||||||||
Total revenues |
$ | 25,892 | $ | 22,001 | $ | 3,891 | 18 | % | ||||||||
Three Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Cost of revenues: |
||||||||||||||||
Online |
$ | 5,547 | $ | 4,921 | $ | 626 | 13 | % | ||||||||
Events |
1,488 | 1,149 | 339 | 30 | ||||||||||||
Total cost of revenues |
$ | 7,035 | $ | 6,070 | $ | 965 | 16 | % | ||||||||
Gross profit |
$ | 18,857 | $ | 15,931 | $ | 2,926 | 18 | % | ||||||||
Gross profit percentage |
73 | % | 72 | % |
25
Three Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Selling and marketing |
$ | 10,182 | $ | 8,984 | $ | 1,198 | 13 | % | ||||||||
Product development |
1,874 | 2,087 | (213 | ) | (10 | ) | ||||||||||
General and administrative |
3,105 | 3,567 | (462 | ) | (13 | ) | ||||||||||
Depreciation |
692 | 592 | 100 | 17 | ||||||||||||
Amortization of intangible assets |
955 | 1,126 | (171 | ) | (15 | ) | ||||||||||
Total operating expenses |
$ | 16,808 | $ | 16,356 | $ | 452 | 3 | % | ||||||||
Interest income, net |
$ | 20 | $ | 79 | $ | (59 | ) | (75 | )% | |||||||
Provision for income taxes |
$ | 1,106 | $ | 266 | $ | 840 | 316 | % | ||||||||
Nine Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Revenues: |
||||||||||||||||
Online |
$ | 66,294 | $ | 58,065 | $ | 8,229 | 14 | % | ||||||||
Events |
10,266 | 10,052 | 214 | 2 | ||||||||||||
Total revenues |
$ | 76,560 | $ | 68,117 | $ | 8,443 | 12 | % | ||||||||
26
Nine Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Cost of revenues: |
||||||||||||||||
Online |
$ | 16,873 | $ | 15,043 | $ | 1,830 | 12 | % | ||||||||
Events |
3,607 | 3,459 | 148 | 4 | ||||||||||||
Total cost of revenues |
$ | 20,480 | $ | 18,502 | $ | 1,978 | 11 | % | ||||||||
Gross profit |
$ | 56,080 | $ | 49,615 | $ | 6,465 | 13 | % | ||||||||
Gross profit percentage |
73 | % | 73 | % |
Nine Months Ended September 30, | ||||||||||||||||
Increase | Percent | |||||||||||||||
2011 | 2010 | (Decrease) | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Selling and marketing |
$ | 28,997 | $ | 27,815 | $ | 1,182 | 4 | % | ||||||||
Product development |
5,690 | 6,623 | (933 | ) | (14 | ) | ||||||||||
General and administrative |
10,362 | 11,671 | (1,309 | ) | (11 | ) | ||||||||||
Restructuring charge |
384 | | 384 | | ||||||||||||
Depreciation |
2,001 | 1,759 | 242 | 14 | ||||||||||||
Amortization of intangible assets |
3,030 | 3,401 | (371 | ) | (11 | ) | ||||||||||
Total operating expenses |
$ | 50,464 | $ | 51,269 | $ | (805 | ) | (2 | )% | |||||||
Interest income, net |
$ | 32 | $ | 270 | $ | (238 | ) | (88 | )% | |||||||
Provision for income taxes |
$ | 2,942 | $ | 1,122 | $ | 1,820 | 162 | % | ||||||||
27
28
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
($ in thousands) | ||||||||
Cash, cash equivalents and investments |
$ | 56,293 | $ | 50,134 | ||||
Accounts receivable, net |
$ | 27,100 | $ | 24,678 | ||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
($ in thousands) | ||||||||
Net cash provided by operating activities |
$ | 10,572 | $ | 8,594 | ||||
Net cash used in investing activities(1) |
$ | (5,645 | ) | $ | (5,831 | ) | ||
Net cash provided by financing activities |
$ | 1,856 | $ | 874 | ||||
(1) | Cash used in investing activities is shown net of investment activity of $(14.1) million and $(0.7) million for the nine months ended September 30, 2011 and 2010, respectively. |
29
30
Payments Due By Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1 - 3 Years | 3 - 5 Years | 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Operating leases |
$ | 28,604 | $ | 4,155 | $ | 6,505 | $ | 6,436 | $ | 11,508 | ||||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
31
Item 4. | Controls and Procedures Disclosure Controls and Procedures |
32
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
| variations in expenditures by advertisers due to budgetary constraints; |
| the cancellation or delay of projects by advertisers; |
| the cyclical and discretionary nature of advertising spending; |
| general economic conditions, as well as economic conditions specific to the Internet and online and offline media industry; and |
| the occurrence of extraordinary events, such as natural disasters, international or domestic terrorist attacks or armed conflict. |
| weakness in corporate IT spending resulting in a decline in IT advertising spending; |
| increased concentration in the IT industry as a result of consolidations, leading to a decrease in the number of current and prospective customers, as well as an overall reduction in advertising; |
| reduced spending by combined entities following such consolidations; |
| the timing of advertising campaigns around new product introductions and initiatives; and |
| economic conditions specific to the IT industry. |
33
| the spending priorities and advertising budget cycles of specific advertisers; |
| the addition or loss of advertisers; |
| the addition of new sites and services by us or our competitors; and |
| seasonal fluctuations in advertising spending. |
34
| anticipate and respond successfully to rapidly changing IT developments and preferences to ensure that our content remains timely and interesting to our users; |
| attract and retain qualified editors, writers and technical personnel; |
| fund new development for our programs and other offerings; |
| successfully expand our content offerings into new platform and delivery mechanisms; and |
| promote and strengthen the brands of our websites and our name. |
35
| the need to hire, integrate, motivate and retain additional sales and sales support personnel; |
| the need to train new sales personnel, many of whom lack sales experience when they are hired; and |
| competition from other companies in hiring and retaining sales personnel. |
| 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; |
| unanticipated expenses related to technology and other integration; |
| potential failure to achieve additional sales and enhance our customer bases through cross marketing of the combined companys services to new and existing customers; |
| potential detrimental impact to our pricing based on the historical pricing of any acquired business with common clients and the market generally; |
| potential litigation resulting from our business combinations or acquisition activities; and |
| potential unknown liabilities associated with the acquired businesses. |
36
37
38
| limitations on our activities in foreign countries where we have granted rights to existing business partners; |
| the adaptation of our websites and advertising programs to meet local needs and to comply with local legal regulatory requirements; |
| varied, unfamiliar and unclear legal and regulatory restrictions, as well as unforeseen changes in, legal and regulatory requirements; | ||
| more restrictive data protection regulation, which may vary by country; | ||
| more extensive labor regulation, which may vary by country; | ||
| difficulties in staffing and managing multinational operations; | ||
| difficulties in finding appropriate foreign licensees or joint venture partners; | ||
| distance, language and cultural differences in doing business with foreign entities; | ||
| foreign political and economic uncertainty; |
| less extensive adoption of the Internet as an information source and increased restriction on the content of websites; |
| currency exchange-rate fluctuations; and |
| potential adverse tax requirements. |
39
| privacy, data security and use of personally identifiable information; |
| copyrights, trademarks and domain names; and |
| marketing practices such as behavioral advertising, e-mail or direct marketing. |
| decrease the growth rate of the Internet; |
| reduce our revenues; |
| increase our operating expenses; or |
| expose us to significant liabilities. |
40
| occasional scheduled maintenance; |
| equipment failure; |
| volumes of visits to our websites that exceed our infrastructures capacity; and |
| natural disasters, telecommunications failures, power failures, other system failures, maintenance, viruses, hacking or other events outside of our control. |
41
| our operating performance and the operating performance of similar companies; |
| the overall performance of the equity markets; |
42
| announcements by us or our competitors of acquisitions, business plans or commercial relationships; |
| threatened or actual litigation; |
| changes in laws or regulations relating to the provision of Internet content; |
| any major 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. |
| 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 less than unanimous 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. |
43
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) | Sales of Unregistered Securities |
(b) | Use of Proceeds from Public Offering of Common Stock |
(c) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Removed and reserved |
Item 5. | Other Information |
Item 6. | Exhibits |
44
TECHTARGET, INC | ||||||
(Registrant) | ||||||
Date: November 9, 2011
|
By: | /s/ GREG STRAKOSCH
|
||||
(Principal Executive Officer) | ||||||
Date: November 9, 2011
|
By: | /s/ JEFFREY WAKELY
|
||||
Treasurer | ||||||
(Principal Accounting and Financial Officer) |
45
Exhibit | ||||
No. | Description of Exhibit | |||
31.1 | Certification of Greg Strakosch, Chief Executive Officer of TechTarget,
Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities
Exchange Act of 1934, dated November 9, 2011. |
|||
31.2 | Certification of Jeffrey Wakely, Chief Financial Officer and Treasurer of
TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934, dated November 9, 2011. |
|||
32.1 | Certifications of Greg Strakosch, Chief Executive Officer of TechTarget,
Inc. and Jeffrey Wakely, Chief Financial Officer and Treasurer of
TechTarget, Inc. pursuant to 18 U.S.C. Section 1350, dated November 9,
2011. |
|||
101.INS | * | XBRL Instance Document |
||
101.SCH | * | XBRL Taxonomy Extension Schema Document |
||
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
||
101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
||
101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
||
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections. |
46
1. | I have reviewed this Quarterly Report on Form 10-Q of TechTarget, Inc.; | |
2. | 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; | |
3. | 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; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ GREG STRAKOSCH
|
||||
Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of TechTarget, Inc.; | |
2. | 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; | |
3. | 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; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ JEFFREY WAKELY
|
||||
Chief Financial Officer and Treasurer |
Date: November 9, 2011
|
By: | /s/ GREG STRAKOSCH
|
||||
Chief Executive Officer | ||||||
Date: November 9, 2011
|
By: | /s/ JEFFREY WAKELY
|
||||
Chief Financial Officer and Treasurer |
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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Current assets: | ||
Allowance for doubtful accounts, accounts receivable | $ 1,185 | $ 1,026 |
Stockholders' equity: | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 43,660,157 | 42,901,926 |
Common stock, shares outstanding | 37,802,279 | 37,044,048 |
Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data | 3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |||||||
Revenues: | ||||||||||
Online | $ 21,763 | $ 18,878 | $ 66,294 | $ 58,065 | ||||||
Events | 4,129 | 3,123 | 10,266 | 10,052 | ||||||
Total revenues | 25,892 | 22,001 | 76,560 | 68,117 | ||||||
Cost of revenues: | ||||||||||
Online(1) | 5,547 | [1] | 4,921 | [1] | 16,873 | [1] | 15,043 | [1] | ||
Events(1) | 1,488 | [1] | 1,149 | [1] | 3,607 | [1] | 3,459 | [1] | ||
Total cost of revenues | 7,035 | 6,070 | 20,480 | 18,502 | ||||||
Gross profit | 18,857 | 15,931 | 56,080 | 49,615 | ||||||
Operating expenses: | ||||||||||
Selling and marketing(1) | 10,182 | [1] | 8,984 | [1] | 28,997 | [1] | 27,815 | [1] | ||
Product development(1) | 1,874 | [1] | 2,087 | [1] | 5,690 | [1] | 6,623 | [1] | ||
General and administrative(1) | 3,105 | [1] | 3,567 | [1] | 10,362 | [1] | 11,671 | [1] | ||
Restructuring charge | 384 | |||||||||
Depreciation | 692 | 592 | 2,001 | 1,759 | ||||||
Amortization of intangible assets | 955 | 1,126 | 3,030 | 3,401 | ||||||
Total operating expenses | 16,808 | 16,356 | 50,464 | 51,269 | ||||||
Operating income (loss) | 2,049 | (425) | 5,616 | (1,654) | ||||||
Interest income, net | 20 | 79 | 32 | 270 | ||||||
Income (loss) before provision for income taxes | 2,069 | (346) | 5,648 | (1,384) | ||||||
Provision for income taxes | 1,106 | 266 | 2,942 | 1,122 | ||||||
Net income (loss) | 963 | (612) | 2,706 | (2,506) | ||||||
Net income (loss) per common share: | ||||||||||
Basic | $ 0.03 | $ (0.01) | $ 0.07 | $ (0.06) | ||||||
Net income (loss) per common share: | ||||||||||
Diluted | $ 0.02 | $ (0.01) | $ 0.07 | $ (0.06) | ||||||
Weighted average common shares outstanding: | ||||||||||
Basic | 38,511 | 43,209 | 38,261 | 42,878 | ||||||
Weighted average common shares outstanding: | ||||||||||
Diluted | 40,008 | 43,209 | 40,578 | 42,878 | ||||||
(1) Amounts include stock-based compensation expense as follows: | ||||||||||
Cost of revenues: | ||||||||||
Online(1) | 65 | (38) | 197 | 136 | ||||||
Events(1) | 22 | 23 | 64 | 69 | ||||||
Operating expenses: | ||||||||||
Selling and marketing(1) | 1,149 | 1,708 | 3,389 | 5,172 | ||||||
Product development(1) | 111 | 104 | 317 | 420 | ||||||
General and administrative(1) | $ 361 | $ 785 | $ 1,687 | $ 3,369 | ||||||
|
Document and Entity Information (USD $) In Millions, except Share data | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Oct. 31, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | TechTarget Inc | ||
Entity Central Index Key | 0001293282 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Accelerated Filer | ||
Entity Public Float | $ 79.7 | ||
Entity Common Stock, Shares Outstanding | 38,549,094 |
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Net Income (Loss) Per Common Share | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net Income (Loss) Per Common Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Per Common Share |
7. Net Income (Loss) Per Common Share
A reconciliation of the numerator and denominator used in the calculation of basic and diluted
net income (loss) per common share is as follows:
|
Stockholders' Equity | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Comprehensive Income (Loss) and Stockholders' Equity [Abstract] | |
Stockholders' Equity |
12. Stockholders’ Equity
Reserved Common Stock
As of September 30, 2011, the Company has reserved 11,037,452 shares of common stock for
options outstanding and available for grant under stock option plans.
Warrants
In connection with an acquisition in May 2000, the Company issued to the seller a warrant to
purchase 40,625 shares of common stock at a price of $2.36 per share. In 2007, the seller exercised
warrants to purchase 30,981 shares of common stock using the conversion rights in the warrants. As
result of the exercise using the conversion rights, the Company issued 26,024 shares of common
stock to the seller and cancelled the 4,957 shares received in lieu of payment of the exercise
price. In 2008, the seller exercised additional warrants to purchase 8,375 shares of common stock
using the conversion rights in the warrants. As a result of the exercise using the conversion
rights, the Company issued 6,886 shares of common stock to the seller and cancelled the 1,489
shares received in lieu of payment of the exercise price. The balance of the unexercised portion of
the warrant expired in the second quarter of 2010.
|
Fair Value Measurements | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
3. Fair Value Measurements
The Company measures certain financial assets at fair value on a recurring basis, including
cash equivalents, and short and long-term investments. The fair value of these financial assets was
determined based on three levels of input as follows:
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:
|
Commitments and Contingencies | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
9. Commitments and Contingencies
Operating Leases
The Company conducts its operations in leased office facilities under various non-cancelable
operating lease agreements that expire through February 2020. Future minimum lease payments under
the Company’s non-cancelable operating leases at September 30, 2011 are as follows:
The Company has an irrevocable standby letter of credit outstanding in the aggregate amount of
$1.5 million. This letter of credit supports the lease the Company entered into in 2009 for its
corporate headquarters. This letter of credit extends, subject to certain reductions, annually
through February 28, 2020 unless notification of termination is received.
Net Worth Tax Contingency
In late March 2010, the Company received a letter from the Department of Revenue of the
Commonwealth of Massachusetts (the “MA DOR”) requesting documentation demonstrating that TechTarget
Securities Corporation (“TSC”), a wholly-owned subsidiary of the Company, has been classified by
the MA DOR as a Massachusetts security corporation. Following subsequent correspondence with the
MA DOR and a settlement conference on March 22, 2011, the Company received on July 16, 2011 a
Notice of Assessment from MA DOR for 2006 and 2007 in the amount of approximately $198 (which
amount included all interest and penalties to date) with respect to additional excise taxes on net
worth related to TSC. Based on the Company’s previous assessment that it was probable that the MA
DOR would require an adjustment to correct TSC’s tax filings such that it will be treated as a
Massachusetts business corporation for the applicable years, for the year ended December 31, 2010,
the Company recorded a liability of approximately $200, representing its best estimate at that time
of the potential net worth tax exposure. The tax benefits available to a Massachusetts security
corporation are comprised of (i) lower income tax rate (1.32% vs. 9.5%) and (ii) exemption from the
0.26% excise tax on net worth. On August 17, 2011, the Company filed Applications for Abatement
with the MA DOR and intends to continue to dispute the assessment and believes it has meritorious
defenses which it intends to vigorously assert. There were no changes to the net worth tax reserve
assessment as of September 30, 2011.
Litigation
From time to time and in the ordinary course of business, the Company may be subject to
various claims, charges, and litigation. At September 30, 2011 and December 31, 2010, 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.
|
Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
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 CEO and President review results
and make decisions on how to allocate resources and assess performance.
Geographic Data
Net sales to unaffiliated customers by geographic area were as follows:
|
Comprehensive Income (Loss) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) and Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) |
10. Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity during a period, except those
resulting from investments by stockholders and distributions to stockholders. For the three and
nine months ended September 30, 2011 and 2010 the Company’s comprehensive income (loss) is as
follows:
|
Credit Facility | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Credit Facility [Abstract] | |
Credit Facility |
8. Credit Facility
The Company’s $5.0 million revolving credit facility was amended in August 2011, extending its
term and adjusting certain other financial terms and covenants. Unless earlier payment is required
by an event of default, all principal and unpaid interest will be due and payable on August 31,
2016. At the Company’s option, the Revolving Credit Facility (“Credit Agreement”) bears interest at
either the prime rate less 1.00% or the London Interbank Offered Rate (“LIBOR”) plus the applicable
LIBOR margin. The applicable LIBOR margin is based on the ratio of total funded debt to earnings
before interest, other income and expense, income taxes, depreciation, and amortization (“EBITDA”)
for the preceding four fiscal quarters. As of September 30, 2011, the applicable LIBOR margin,
which was the operative rate during the quarter ended September 30, 2011, was 1.25%.
The Company is also required to pay an unused line fee on the daily unused amount of its
Revolving Credit Facility at a per annum rate based on the ratio of total funded debt to EBITDA for
the preceding four fiscal quarters. As of September 30, 2011, the per annum unused line fee rate
was 0.20%.
At September 30, 2011 and December 31, 2010 there were no amounts outstanding under this
Credit Agreement. There was a $1.5 million standby letter of credit related to the Company’s
corporate headquarters lease that was outstanding at September 30, 2011, bringing our available
borrowings on the $5.0 million facility to $3.5 million.
Borrowings under the Credit Agreement are collateralized by a security interest in
substantially all assets of the Company. Covenants governing the Credit Agreement include the
maintenance of certain financial ratios. At September 30, 2011 the Company was in compliance with
all covenants under the Credit Agreement.
|
Organization and Operations | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Organization and Operations [Abstract] | |
Organization and Operations |
1. Organization and Operations
TechTarget, Inc. (the “Company”) is a leading provider of specialized online content that
brings together buyers and sellers of corporate information technology (“IT”) products. The Company
sells customized marketing programs that enable IT vendors to reach corporate IT decision makers
who are actively researching specific IT purchases. Online content is specifically defined as
those advertising and media offerings being available to users via internet websites as opposed to
traditional “offline” media offerings available in print, radio and television advertising.
The Company’s integrated content platform consists of a network of more than 100 websites that
are complemented with targeted in-person events. During the critical stages of the purchase
decision process, these content offerings meet IT professionals’ needs for expert, peer and IT
vendor information, and provide a platform on which IT vendors can launch targeted marketing
campaigns that generate measurable, high return on investment (“ROI”). As IT professionals have
become increasingly specialized, they have come to rely on the Company’s sector-specific websites
for purchasing decision support. The Company’s content enables IT professionals to navigate the
complex and rapidly changing IT landscape where purchasing decisions can have significant financial
and operational consequences. Based upon the logical clustering of users’ respective job
responsibilities and the marketing focus of the products that the Company’s customers are
advertising, content offerings are currently categorized across nine distinct media groups:
Application Architecture and Development; Channel; CIO/IT Strategy; Data Center and Virtualization
Technologies; Business Applications and Analytics; Networking; Security; Storage; and
TechnologyGuide.com.
|
Cash, Cash Equivalents and Investments | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Investments |
4. Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of highly liquid investments with maturities of three months
or less at date of purchase. Cash equivalents are carried at cost, which approximates their fair
market value. Cash and cash equivalents consisted of the following:
The Company’s short and long-term investments are accounted for as available for sale
securities. These investments are recorded at fair value with the related unrealized gains and
losses included in accumulated other comprehensive income (loss), a component of stockholders’
equity, net of tax. The unrealized gain (loss), net of taxes, was $10 and $(5) as of September 30,
2011 and December 31, 2010, respectively. Realized gains and losses on the sale of these
investments are determined using the specific identification method. There were no realized gains
or losses during the three or nine months ended September 30, 2011 or 2010.
Short and long-term investments consisted of the following:
The Company had eight debt securities in an unrealized loss position at September 30, 2011.
All of these securities have been in such a position for less than 12 months; the unrealized loss
on those securities was approximately $11 and the fair value was $15.9 million. As of September
30, 2011, the Company does not consider these investments to be other-than-temporarily impaired.
All income generated from these investments is recorded as interest income.
|
Acquisitions | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions |
5. Acquisitions
On April 26, 2011 the Company acquired the websites, product offerings, and events associated
with Computer Weekly and its sister channel-targeted brand, MicroScope, from Reed Business
Information Limited for $2.0 million in cash plus the payment of approximately $0.4 million in
restructuring costs relating to redundancy costs of Computer Weekly employees not brought over as
part of the acquisition.
In connection with this acquisition, the Company’s preliminary allocation of purchase price is
approximately $40 of net tangible assets, $147 of goodwill and $1.9 million of intangible assets
related to customer relationships, a member database, a non-compete agreement and trade names with
estimated useful lives ranging from two to five years.
The estimated fair value of the $1.9 million of acquired intangible assets is assigned as
follows:
The Company engaged a third party valuation specialist to assist management in determining the
fair value of the intangible assets of the Computer Weekly and MicroScope businesses. To value the
customer relationship assets, an income approach was used, specifically a variation of the
discounted cash-flow method known as the multi-period excess earnings method. The projected net
cash flows were discounted using a discount rate of 28.3%. To value the member database, a
replacement cost approach was used, specifically a calculation of costs to acquire new members
based on the cost to acquire new members in 2010 divided by new members acquired. Additionally,
the present value of the sum of projected lost profits was added to the calculated replacement cost
to calculate the total fair value of the member database asset. To value the non-compete agreement,
a comparative business valuation method was used. Based on a non-compete term of 24 months,
management projected net cash flows for the Company with and without the non-compete agreement in
place. The present value of the sum of the difference between the net cash flows with and without
the non-compete agreement in place was calculated, based on a discount rate of 28.3%. To value the
trade name intangible asset, a relief from royalty method was used to estimate the pre-tax royalty
savings to the Company related to the Computer Weekly and MicroScope trade names. The projected
net cash flows from the pre-tax royalty savings were tax affected using an effective rate of 26%
and then discounted using a discount rate of 28.3% to calculate the value of the trade name
intangible asset.
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Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Income Taxes [Abstract] | |
Income Taxes |
13. Income Taxes
The Company’s effective tax rate was 52% and (81)% for the nine months ended September 30,
2011 and 2010, respectively. The provision for income taxes for the nine months ended September
30, 2011 includes a discrete tax expense of $65 related to a state tax assessment for a prior
period. The effective tax rate excluding the discrete tax expense was 51% for the nine months
ended September 30, 2011. The change in the effective tax rate excluding the discrete tax expense
was as a result of applying the provision of ASC 740, Income Taxes, as it relates to interim
periods. For the nine months ended September 30, 2011, the Company calculated the provision for
income taxes using a forecasted tax rate for the year ended December 31, 2011. For the nine months
ended September 30, 2010, due to net operating losses, the Company calculated the provision for
income taxes using a period-to-date approach. The Company recognized interest and penalties
totaling $21 in income tax expense in the nine months ended September 30, 2011.
For the year ended December 31, 2010, the Company had recorded a tax reserve of approximately
$400 for the potential state income tax liability arising from the difference between the income
tax rates applicable for security corporations and business corporations in Massachusetts, relating
to the matter described in Note 9. In connection with such matter, on July 21, 2011, the Company
received a Notice of Assessment from MA DOR for 2006 and 2007 in the amount of approximately $345
(which amount included all interest and penalties to date) with respect to additional income taxes
related to TechTarget, Inc. The Company increased the reserve assessment to reflect additional
interest accrued through the third quarter of 2011. The balance of the reserve assessment as of
September 30, 2011 was $426. On August 17, 2011, the Company filed Applications for Abatement with
the MA DOR and intends to continue to dispute the assessment and believes it has meritorious
defenses which it intends to vigorously assert.
Tax years 2007 through 2010 are subject to examination by the federal and state taxing
authorities. There are no income tax examinations currently in process with the exception of the
TSC matter noted above related to the MA DOR.
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Intangible Assets |
6. Intangible Assets
Intangible assets subject to amortization as of September 30, 2011 and December 31, 2010
consist of the following:
Intangible assets are amortized over their estimated useful lives, which range from one to
nine years, using methods of amortization that are expected to reflect the estimated pattern of
economic use. The remaining amortization expense will be recognized over a weighted-average period
of approximately 2.3 years. Amortization expense was $1.0 million and $1.1 million for the three
month periods ended September 30, 2011 and 2010, respectively, and $3.0 million and $3.4 million
for the nine months ended September 30, 2011 and 2010, 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 $7.5 million of fully amortized intangible assets to date in 2011.
The Company expects amortization expense of intangible assets to be as follows:
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Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
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 the consolidated
financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, which include KnowledgeStorm, Inc., Bitpipe, Inc., TechTarget Securities
Corporation, TechTarget Limited and TechTarget (HK) Limited (“TTGT HK”). KnowledgeStorm, Inc. and
Bitpipe, Inc. are leading websites providing in-depth vendor generated content targeted toward
corporate IT professionals. TechTarget Securities Corporation is a Massachusetts Securities
Corporation incorporated in 2004. TechTarget Limited is a subsidiary doing business principally in
the United Kingdom. TechTarget (HK) Limited is a subsidiary incorporated in Hong Kong in August
2010 in order to facilitate the Company’s activities in Asia-Pac. Additionally, as of October 1,
2010, through its wholly-owned subsidiary, TTGT HK, the Company effectively controls a variable
interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd, (“KWIT”), which was
incorporated under the laws of the People’s Republic of China (“PRC”) on November 27, 2007.
PRC laws and regulations prohibit or restrict foreign ownership of Internet-related services
and advertising businesses. To comply with these foreign ownership restrictions, the Company
operates its websites and provides online advertising services in the PRC through this VIE. The
Company has entered into certain exclusive agreements with the VIE and its shareholders through
TTGT HK, which obligate TTGT HK to absorb the risk of loss from the VIE’s activities and entitles
TTGT HK to receive their residual returns. In addition, the Company has entered into certain
agreements with the authorized parties through TTGT HK, including Management and Consulting
Services, Voting Proxy, Equity Pledge and Option Agreements.
Based on these contractual arrangements, the Company consolidates the VIE as required by
Accounting Standards Codification (“ASC”) subtopic 810-10 (“ASC 810-10”), Consolidation: Overall,
because the Company holds all the variable interests of the VIE through TTGT HK, which is the
primary beneficiary of the VIE. Despite the lack of technical majority ownership, there exists a
parent-subsidiary relationship between the Company and the VIE through the aforementioned
agreements, whereby the equity holders of the VIEs effectively assigned all of their voting rights
underlying their equity interest in the VIE to TTGT HK. In addition, through the other
aforementioned agreements, the Company demonstrates its ability and intention to continue to
exercise the ability to obtain substantially all of the profits and absorb all of the expected
losses of the VIE. All significant intercompany accounts and transactions between the Company, its
subsidiaries, and the VIE have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (generally accepted accounting
principles, or “GAAP”) for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete financial
statements. All adjustments, which, in the opinion of management, are considered necessary for a
fair presentation of the results of operations for the periods shown, are of a normal recurring
nature and have been reflected in the consolidated financial statements. The results of operations
for the periods presented are not necessarily indicative of results to be expected for any other
interim periods or for the full year. The information included in these consolidated financial
statements should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contained in this report and the consolidated financial
statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2010.
Reclassifications
In 2011, the Company changed the manner in which it allocates real estate facilities costs to
align with actual departmental headcount. Previously, these costs were all included as a part of
general and administrative expenses. Amounts in the prior years’ financial statements have been
reclassified to conform to the current year presentation. In the three months ended September 30,
2010 this resulted in additional online cost of sales, events cost of sales, sales and marketing
and product development expense of $347, $65, $416 and $140, respectively, offset by a decrease in
general and administrative expense of $968. In the nine months ended September 30, 2010 this
resulted in additional online cost of sales, events cost of sales, sales and marketing and product
development expense of $1.1 million, $0.2 million, $1.4 million and $0.5 million, respectively,
offset by a decrease in general and administrative expense of $3.2 million.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
The Company generates substantially all of its revenue from the sale of targeted advertising
campaigns that are delivered via its network of websites and events. Revenue is recognized only
when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service
is performed and collectability of the resulting receivable is reasonably assured.
Although each of the Company’s online media offerings can be sold separately, the majority of
the Company’s online media sales involve multiple online offerings, which are described in more
detail below. During fiscal 2010 and prior, because objective evidence of fair value did not exist
for all elements in the Company’s bundled advertising campaigns, no allocation could be made among
the various elements, so the Company recognized revenue on all units of accounting ratably over the
term of the arrangement. In September 2009, the FASB ratified Accounting Standards Update (“ASU”)
2009-13, Revenue Arrangements with Multiple Deliverables, which updates the existing
multiple-element revenue arrangements guidance included in ASC 605-25. ASU 2009-13 requires
companies to allocate the overall consideration to each deliverable by using a best estimate of
selling price of individual deliverables in the arrangement in the absence of vendor-specific
objective evidence or other third party evidence of selling price. The Company adopted the new
standard, beginning on January 1, 2011, on a prospective basis. Because neither vendor-specific
objective evidence of fair value nor third party evidence of selling price exists for all elements
in the Company’s bundled advertising campaigns, the Company uses an estimated selling price which
represents management’s best estimate of the stand-alone selling price of deliverables for each
deliverable in an arrangement. The Company uses the relative selling price method to allocate
consideration at the inception of the arrangement to each deliverable in a multiple element
arrangement. The relative selling price method allocates any discount in the arrangement
proportionately to each deliverable on the basis of the
deliverable’s best estimated selling price. Revenue is
then recognized as delivery occurs. For content posted on websites, revenue recognition is
generally over the period the content is available.
The Company has concluded that adoption of this standard did not materially affect results in
the first nine months of 2011, nor is it expected to materially affect future periods.
Event Sponsorships. Revenue from vendor-sponsored events, whether sponsored exclusively by a
single vendor or in a multi-vendor sponsored event, is recognized upon completion of the event in
the period the event occurs. The majority of the Company’s events are free to qualified attendees;
however, certain events are based on a paid attendee model. The Company recognizes revenue for paid
attendee events upon completion of the event and receipt of payment from the attendee. Amounts
collected or billed prior to satisfying the above revenue recognition criteria are recorded as
deferred revenue.
Online Media. Revenue for specific online media offerings is recognized as follows:
Amounts collected or billed prior to satisfying the above revenue recognition criteria are
recorded as deferred revenue.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, short and long-term investments,
accounts receivable and accounts payable. The carrying value of these instruments approximates
their estimated fair values.
Long-lived Assets
Long-lived assets consist primarily of property and equipment, goodwill and other intangible
assets. 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 market value of net tangible 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 one to nine 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. 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. Based on this evaluation,
the Company believes that, as of each of the balance sheet dates 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 September 30, 2011 or December 31, 2010.
Internal-Use Software and Website Development Costs
The Company capitalizes costs incurred during the development of its website applications and
infrastructure as well as certain costs relating to internal-use software. The estimated useful
life of costs capitalized is evaluated for each specific project. Capitalized internal-use
software and website development costs are reviewed for recoverability whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be recoverable. An
impairment loss shall 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 $1.0 million and $0.6 million for the three months ended September 30, 2011 and 2010,
respectively, and $2.6 million and $1.6 million for the nine months ended September 30, 2011 and
2010, respectively.
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. If required, a valuation allowance is established against net deferred tax assets
if, based upon available evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized. The Company recognizes any interest and penalties related to uncertain
tax positions in income tax expense.
Stock-Based Compensation
At September 30, 2011, the Company had two 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 Statement of Operations on a straight-line
basis over the vesting period of the award or using the accelerated method if the award is
contingent upon performance goals. The Company uses the Black-Scholes option-pricing model to
determine the fair value of stock option awards.
Net Income (Loss) Per Share
Basic earnings per share is computed based on the weighted average number of common shares and
vested restricted stock awards outstanding during the period. Because the holders of unvested
restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents, the
Company does not consider these awards to be participating securities that should be included in
its computation of earnings per share under the two-class method. Diluted earnings per share is
computed using the weighted average number of common shares and vested restricted stock awards
outstanding during the period, plus the dilutive effect of potential future issuances of common
stock relating to stock option programs and other potentially dilutive securities using the
treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock
options is computed using the average market price for the respective period. In addition, the
assumed proceeds under the treasury stock method include the average unrecognized compensation
expense and assumed tax benefit of stock options that are in-the-money. This results in the
“assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2009-14, Certain Revenue Arrangements That Include Software Elements (“ASU
2009-14”). ASU 2009-14 amends guidance included within Accounting Standards Codification (“ASC”)
Topic 985-605 to exclude tangible products containing software components and non-software
components that function together to deliver the product’s essential functionality. Entities that
sell joint hardware and software products that meet this scope exception will be required to follow
the guidance of ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption and retrospective application are also permitted. The Company determined that adopting
the provisions of ASU 2009-14 did not impact its consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations (Topic 805), which specifies that if a public entity presents
financial statements, the entity should disclose revenue and earnings of the combined entity as
though the business combination(s) that occurred during the year occurred as of the beginning of
the comparable prior annual reporting period only. This ASU also expands the supplemental pro
forma disclosure. The ASU is effective for business combinations for which the acquisition date is
on or after the annual reporting period beginning on or after December 15, 2010. The adoption of
this standard did not affect the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"), which
provides common requirements for measuring fair value and for disclosing information about fair
value measurements in accordance with GAAP and International Financial Reporting Standards
(“IFRS”). ASU 2011-04 changes certain fair value measurement principles, clarifies the application
of existing fair value measurement and expands ASC 820 disclosure requirements, particularly for
Level 3 fair value measurements. ASU 2011-04 is effective during interim and annual periods
beginning after December 15, 2011. Early application is prohibited. The Company is currently
assessing the potential impact of this standard but does not expect the adoption of the standard to
have a material impact on the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which
requires entities to present reclassification adjustments included in other comprehensive income on
the face of the financial statements and allows entities to present the total of comprehensive
income, the components of net income and the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two separate but consecutive statements.
It also eliminates the option for entities to present the components of other comprehensive income
as part of the statement of changes in stockholders’ equity. For public companies, ASU 2011-05 is
effective for fiscal years (and interim periods within those years) beginning after December 15,
2011, with earlier adoption permitted. ASU 2011-05 impacts disclosure only and, therefore, is not
expected to have a material effect on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASC update No. 2010-28, Intangibles-Goodwill and Other
(Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero
or Negative Carrying Amounts a consensus of the FASB Emerging Issues Task Force, which modifies
Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.
For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test
if it is more likely than not that a goodwill impairment exists. The qualitative factors that an
entity should consider when evaluating whether it is more likely than not that a goodwill
impairment exists are consistent with the existing guidance for determining whether an impairment
exists between annual tests. The adoption of this update did not have a material impact on the
Company’s financial statements. This update was effective for fiscal periods beginning after
December 15, 2010.
In September 2011, the FASB issued ASU 2011-08: Testing for Goodwill Impairment, which amends
current goodwill impairment testing guidance by providing entities with an option to perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary
to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for interim and
annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with
early adoption permitted. The Company is currently assessing the potential impact of this standard
but does not expect the adoption of the standard to have a material impact on the Company’s
consolidated financial statements.
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Stock-Based Compensation |
11. Stock-Based Compensation
Stock Option Plans
In September 1999, the Company approved a stock option plan (the “1999 Plan”) that provides
for the issuance of up to 12,384,646 shares of common stock incentives. The 1999 Plan provides for
the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock
grants. These incentives may be offered to the Company’s employees, officers, directors,
consultants, and advisors, as defined. ISOs may not be granted at less than fair market value on
the date of grant, as determined by the Company’s Board of Directors (the “Board”). Each option
shall be exercisable at such times and subject to such terms as determined by the Board; grants
generally vest over a four year period and expire no later than ten years after the grant date.
In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”),
which was approved by the stockholders and became effective upon the consummation of the Company’s
IPO in May 2007. Effective upon the consummation of the IPO, no further awards were made pursuant
to the 1999 Plan, but any outstanding awards under the 1999 Plan will remain in effect and will
continue to be subject to the terms of the 1999 Plan. The 2007 Plan allows the Company to grant
ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock and other awards.
Under the 2007 Plan, stock options may not be granted at less than fair market value on the date of
grant, and grants generally vest over a four year period. Stock options granted under the 2007 Plan
expire no later than ten years after the grant date. The Company has reserved an aggregate of
2,911,667 shares of common stock for issuance under the 2007 Plan plus an additional annual
increase to be added automatically on January 1 of each year, beginning on January 1, 2008, equal
to the lesser of (a) 2% of the outstanding number of shares of common stock (on a fully-diluted
basis) on the immediately preceding December 31 and (b) such lower number of shares as may be
determined by the Company’s compensation committee. The number of shares available for issuance
under the 2007 Plan is subject to adjustment in the event of a stock split, stock dividend or other
change in capitalization. Generally, shares that are forfeited or cancelled from awards under the
2007 Plan also will be available for future awards. In addition, shares subject to stock options
returned to the 1999 Plan, as a result of their expiration, cancellation or termination, are
automatically made available for issuance under the 2007 Plan. As of September 30, 2011 a total of
1,342,042 shares were available for grant under the 2007 Plan.
Accounting for Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value
of an award. The Company calculated the fair values of the options granted using the following
estimated weighted-average assumptions:
As there was no public market for the Company’s common stock prior to the Company’s IPO
in May 2007, and limited historical information on the volatility of its common stock since the
date of the Company’s IPO, the Company determined the volatility for options granted in the three
and nine months ended September 30, 2011 and 2010 based on an analysis of the historical volatility
of the Company’s stock and reported data for a peer group of companies that issued options with
substantially similar terms. The expected volatility of options granted has been determined using a
weighted average of the historical volatility of the Company’s stock and the peer group of
companies 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 United States treasury instrument whose term is consistent with the expected life of the
stock options. The Company has not paid and does not anticipate paying cash dividends on its shares
of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied
estimated annual forfeiture rates of 3.6% and 2% for the nine months ended September 30, 2011 and
2010, respectively based on its historical forfeiture experience in determining the expense
recorded in those periods.
A summary of the stock option activity under the Company’s stock option plan for the nine
months ended September 30, 2011 is presented below:
During the nine months ended September 30, 2011 and 2010, the total intrinsic value of options
exercised (i.e. the difference between the market price at exercise and the price paid by the
employee to exercise the options) was $482 and $631, respectively, and the total amount of cash
received from exercise of these options was $1,148 and $663, respectively. The total grant date
fair value of stock options granted after January 1, 2006 that vested during the nine months ended
September 30, 2011 and 2010 was $1.7 million and $4.2 million, respectively.
Restricted Stock Awards
Restricted stock awards are valued at the market price of a share of the Company’s common
stock on the date of grant. A summary of the restricted stock award activity under the 2007 Stock
Plan for the nine months ended September 30, 2011 is presented below:
The total grant-date fair value of restricted stock awards that vested during the nine months
ended September 30, 2011 and 2010 was $2.4 million and $3.5 million, respectively.
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