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Section 1: 10-Q (10-Q)

ttgt-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 1-33472

 

 

 

TECHTARGET, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

04-3483216

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

275 Grove Street Newton, Massachusetts

02466

(Address of principal executive offices)

(zip code)

 

Registrant’s telephone number, including area code: (617) 431-9200

(Former name, former address and formal fiscal year, if changed since last report): Not applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 31, 2017, the registrant had 27,597,437 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

Item

 

 

 

Page

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

 

3

 

 

Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016

 

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

 

5

 

 

Notes to Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

Item 6.

 

Exhibits

 

35

 

 

Signatures

 

36

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TECHTARGET, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30,

2017

 

 

December 31,

2016

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,253

 

 

$

18,485

 

Short-term investments

 

 

8,764

 

 

 

10,988

 

Accounts receivable, net of allowance for doubtful accounts of $1,676 and $1,961 as

   of September 30, 2017 and December 31, 2016, respectively

 

 

29,393

 

 

 

22,551

 

Prepaid taxes

 

 

2,133

 

 

 

3,961

 

Prepaid expenses and other current assets

 

 

2,670

 

 

 

1,952

 

Total current assets

 

 

62,213

 

 

 

57,937

 

Property and equipment, net

 

 

8,757

 

 

 

9,232

 

Long-term investments

 

 

3,042

 

 

 

7,801

 

Goodwill

 

 

93,717

 

 

 

93,469

 

Intangible assets, net

 

 

542

 

 

 

601

 

Deferred tax assets

 

 

543

 

 

 

139

 

Other assets

 

 

880

 

 

 

898

 

Total assets

 

$

169,694

 

 

$

170,077

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,486

 

 

$

2,100

 

Current portion of term loan

 

 

9,888

 

 

 

6,157

 

Accrued expenses and other current liabilities

 

 

2,747

 

 

 

2,792

 

Accrued compensation expenses

 

 

1,240

 

 

 

698

 

Income taxes payable

 

 

-

 

 

 

122

 

Deferred revenue

 

 

9,238

 

 

 

6,079

 

Total current liabilities

 

 

24,599

 

 

 

17,948

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term portion of term loan

 

 

24,811

 

 

 

32,286

 

Deferred rent

 

 

1,763

 

 

 

2,080

 

Deferred tax liabilities

 

 

198

 

 

 

200

 

Total liabilities

 

 

51,371

 

 

 

52,514

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

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,

   53,246,110 shares issued and 27,597,037 shares outstanding at September 30, 2017

   and 52,601,284 shares issued and 27,495,539 shares outstanding at December 31,

   2016

 

 

53

 

 

 

52

 

Treasury stock, 25,649,073 shares at September 30, 2017 and 25,105,745 shares at

   December 31, 2016, at cost

 

 

(167,953

)

 

 

(162,731

)

Additional paid-in capital

 

 

298,933

 

 

 

296,853

 

Accumulated other comprehensive gain (loss)

 

 

5

 

 

 

(248

)

Accumulated deficit

 

 

(12,715

)

 

 

(16,363

)

Total stockholders’ equity

 

 

118,323

 

 

 

117,563

 

Total liabilities and stockholders’ equity

 

$

169,694

 

 

$

170,077

 

 

See accompanying Notes to Consolidated Financial Statements.

3


 

TechTarget, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

28,012

 

 

$

24,247

 

 

$

78,085

 

 

$

76,242

 

Events

 

 

 

 

 

1,503

 

 

 

168

 

 

 

3,713

 

Total revenues

 

 

28,012

 

 

 

25,750

 

 

 

78,253

 

 

 

79,955

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Online(1)

 

 

6,951

 

 

 

6,889

 

 

 

20,931

 

 

 

20,360

 

Events

 

 

 

 

 

723

 

 

 

41

 

 

 

2,049

 

Total cost of revenues

 

 

6,951

 

 

 

7,612

 

 

 

20,972

 

 

 

22,409

 

Gross profit

 

 

21,061

 

 

 

18,138

 

 

 

57,281

 

 

 

57,546

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing(1)

 

 

11,568

 

 

 

11,243

 

 

 

33,006

 

 

 

33,331

 

Product development(1)

 

 

2,209

 

 

 

2,074

 

 

 

6,168

 

 

 

6,027

 

General and administrative(1)

 

 

3,288

 

 

 

3,138

 

 

 

9,542

 

 

 

9,392

 

Depreciation

 

 

1,065

 

 

 

951

 

 

 

3,249

 

 

 

2,987

 

Amortization of intangible assets

 

 

44

 

 

 

183

 

 

 

126

 

 

 

718

 

Total operating expenses

 

 

18,174

 

 

 

17,589

 

 

 

52,091

 

 

 

52,455

 

Operating income

 

 

2,887

 

 

 

549

 

 

 

5,190

 

 

 

5,091

 

Interest and other expense, net

 

 

(190

)

 

 

(471

)

 

 

(447

)

 

 

(1,037

)

Income before provision for income taxes

 

 

2,697

 

 

 

78

 

 

 

4,743

 

 

 

4,054

 

Provision for income taxes

 

 

623

 

 

 

100

 

 

 

1,337

 

 

 

1,725

 

Net income (loss)

 

$

2,074

 

 

$

(22

)

 

$

3,406

 

 

$

2,329

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments (net of tax provision of

   $3, $(13), $11, and $3, respectively)

 

$

6

 

 

$

(22

)

 

$

20

 

 

$

5

 

Foreign currency translation gain

 

 

71

 

 

 

11

 

 

 

233

 

 

 

110

 

Other comprehensive income (loss)

 

 

77

 

 

 

(11

)

 

 

253

 

 

 

115

 

Comprehensive income (loss)

 

$

2,151

 

 

$

(33

)

 

$

3,659

 

 

$

2,444

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

(0.00

)

 

$

0.12

 

 

$

0.08

 

Diluted

 

$

0.07

 

 

$

(0.00

)

 

$

0.12

 

 

$

0.07

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,555

 

 

 

27,540

 

 

 

27,521

 

 

 

30,650

 

Diluted

 

 

28,320

 

 

 

27,540

 

 

 

28,275

 

 

 

31,608

 

 

(1)

Amounts include stock-based compensation expense as follows:

 

Cost of online revenues

 

$

13

 

 

$

36

 

 

$

38

 

 

$

90

 

Selling and marketing

 

 

1,284

 

 

 

1,260

 

 

 

3,161

 

 

 

3,103

 

Product development

 

 

18

 

 

 

45

 

 

 

92

 

 

 

124

 

General and administrative

 

 

811

 

 

 

703

 

 

 

2,018

 

 

 

1,753

 

 

See accompanying Notes to Consolidated Financial Statements.

4


 

TechTarget, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,406

 

 

$

2,329

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,373

 

 

 

3,705

 

Provision for bad debt

 

 

606

 

 

 

289

 

Amortization of investment premiums

 

 

214

 

 

 

217

 

Stock-based compensation

 

 

5,309

 

 

 

5,070

 

Amortization of debt issuance costs

 

 

81

 

 

 

128

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,447

)

 

 

452

 

Prepaid taxes, prepaid expenses and other current assets

 

 

(759

)

 

 

(436

)

Other assets

 

 

44

 

 

 

54

 

Accounts payable

 

 

(618

)

 

 

19

 

Income taxes payable

 

 

1,581

 

 

 

1,094

 

Accrued expenses and other current liabilities

 

 

(130

)

 

 

(786

)

Accrued compensation expenses

 

 

519

 

 

 

(88

)

Deferred revenue

 

 

3,159

 

 

 

1,331

 

Other liabilities

 

 

(321

)

 

 

(29

)

Net cash provided by operating activities

 

 

9,017

 

 

 

13,349

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment, and other capitalized assets

 

 

(2,761

)

 

 

(3,435

)

Purchases of investments

 

 

(500

)

 

 

(3,210

)

Proceeds from sales and maturities of investments

 

 

7,300

 

 

 

4,600

 

Net cash provided by (used in) investing activities

 

 

4,039

 

 

 

(2,045

)

Financing activities:

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements

 

 

(3,789

)

 

 

(4,380

)

Purchase of treasury shares and related costs

 

 

(5,222

)

 

 

(45,056

)

Payment of earnout liabilities

 

 

 

 

 

(459

)

Proceeds from exercise of stock options

 

 

561

 

 

 

3,963

 

Debt issuance costs

 

 

(50

)

 

 

(367

)

Term loan proceeds

 

 

 

 

 

50,000

 

Term loan principal payment

 

 

(3,750

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(12,250

)

 

 

3,701

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(38

)

 

 

29

 

Net increase in cash and cash equivalents

 

 

768

 

 

 

15,034

 

Cash and cash equivalents at beginning of period

 

 

18,485

 

 

 

14,783

 

Cash and cash equivalents at end of period

 

$

19,253

 

 

$

29,817

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash (refunded from) paid for taxes, net

 

$

(166

)

 

$

685

 

 

See accompanying Notes to Consolidated Financial Statements.

5


 

TECHTARGET, INC.

Notes to Consolidated Financial Statements

(In thousands, except share and per share data, where otherwise noted, or instances where expressed in millions)

1. Organization and Operations

TechTarget, Inc. and its subsidiaries (the “Company”) is a leading provider of specialized online content for buyers of enterprise information technology (“IT”) products and services, and a leading provider of purchase-intent marketing and sales services for enterprise technology vendors. The Company’s service offerings enable technology vendors to better identify, reach, and influence corporate IT decision makers actively researching specific IT purchases. The Company improves vendors’ ability to impact these audiences for business growth using advanced targeting, analytics, and data services complemented with customized marketing programs that integrate demand generation and brand advertising techniques. The Company operates a network of over 140 websites, each of which focuses on a specific IT sector such as storage, security, or networking. IT professionals have become increasingly specialized, and they have come to rely on the Company’s sector-specific websites for purchasing decision support. The Company’s content platform enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. At critical stages of the purchase decision process, these content offerings, through different channels, meet IT professionals’ needs for expert, peer, and IT vendor information and provide a platform on which IT vendors can launch targeted marketing campaigns which generate measurable return on investment. Based upon the logical clustering of users’ respective job responsibilities and the marketing focus of the products being promoted by the Company’s customers, the Company categorizes its content offerings to address the key market opportunities and audience extensions across a portfolio of distinct media groups: Security; Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; Channel; and TechnologyGuide.com.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these Notes to Consolidated Financial Statements. The Company’s critical accounting policies are those that affect its more significant judgments used in the preparation of its consolidated financial statements. A description of the Company’s critical accounting policies and estimates is contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Other than those noted in the “Accounting Guidance Adopted in 2017” section below, there were no material changes to the Company’s critical accounting policies and use of estimates during the first nine months of 2017.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, TechTarget Securities Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited (“TTGT HK”), TechTarget (Beijing) Information Technology Consulting Co. Ltd. (“TTGT Consulting”), TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS (“LeMagIT”) and TechTarget Germany GmbH. TSC is a Massachusetts corporation. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TTGT HK is a subsidiary incorporated in Hong Kong in order to facilitate the Company’s activities in the Asia-Pacific region. Additionally, through its wholly-owned subsidiaries, TTGT HK and TTGT Consulting, the Company effectively controls a variable interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which was incorporated under the laws of the People’s Republic of China (“PRC”). TechTarget (Australia) Pty Ltd. and TechTarget (Singapore) Pte Ltd. are the entities through which the Company does business in Australia and Singapore, respectively; LeMagIT and TechTarget Germany GmbH, both wholly-owned subsidiaries of TechTarget Limited, are entities through which the Company does business in France and Germany, respectively.

PRC laws and regulations prohibit or restrict foreign ownership of internet-related services and advertising businesses. To comply with these foreign ownership restrictions, the Company operates its websites and provides online advertising services in the PRC through KWIT. The Company entered into certain exclusive agreements with KWIT and its shareholders through TTGT HK, which obligated TTGT HK to absorb all of the risk of loss from KWIT’s activities and entitled TTGT HK to receive all of its residual returns. In addition, the Company entered into certain agreements with the authorized parties through TTGT HK, including Management and Consulting Services, Voting Proxy, Equity Pledge and Option Agreements. TTGT HK assigned all of its rights and obligations to the newly formed wholly foreign-owned enterprise, TTGT Consulting. TTGT Consulting is established and existing under the laws of the PRC, and is wholly-owned by TTGT HK.

Based on these contractual arrangements, the Company consolidates the financial results of KWIT as required by Accounting Standards Codification (“ASC”) 810-10, Consolidation: Overall, because the Company holds all the variable interests of KWIT through TTGT Consulting, which is the primary beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the aforementioned agreements, whereby the equity holders

6


 

of KWIT assigned all of their voting rights underlying their equity interest in KWIT to TTGT Consulting. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of KWIT. All significant intercompany accounts and transactions between the Company, its subsidiaries, and KWIT have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted (Generally Accepted Accounting Principles or GAAP) in the United States (“U.S.”) 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 U.S. 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, 2016.

Reclassifications

The adoption of a recent accounting pronouncement, described in more detail in the Accounting Guidance Adopted in 2017 section below, resulted in an in immaterial adjustment to the Accumulated Deficit in the Consolidated Balance Sheet as of December 31, 2016 and in an immaterial reclassification between Operating Activities and Financing Activities in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016. There was no effect on the Consolidated Statements of Operations and Comprehensive Income.

There were no reclassifications out of accumulated other comprehensive income in the periods ended September 30, 2017 or 2016.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenues, long-lived assets, goodwill, the allowance for doubtful accounts, stock-based compensation, earnouts, self-insurance accruals, and income taxes. The Company reduces its accounts receivable for an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses. Estimates of the carrying value of certain assets and liabilities are based on historical experience and on various other assumptions that the Company believes to be reasonable. Actual results could differ from those estimates.

 

Recent Accounting Pronouncements

Accounting Guidance Adopted in 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the Consolidated Statement of Cash Flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted the provisions of the new standard on January 1, 2017. Implementing the new pronouncement resulted in the Company recognizing tax benefits and tax deficiencies related to stock compensation deductions as a component of the provision for income tax expense in the reporting period in which they occur. Additionally, the Company has applied the modified retrospective adoption approach, which resulted in the Company recording deferred tax assets of approximately $0.2 million with an offsetting entry to retained earnings. ASU 2016-09 also requires the presentation of excess tax benefit from stock options as an operating activity on the Consolidated Statement of Cash Flows instead of as a financing activity, which resulted in an immaterial reclassification in the Consolidated Statement of Cash Flows for the first nine months of 2016.  

7


 

Accounting Guidance Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted only as of annual reporting periods (including interim reporting periods within those reporting periods) beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. In April and May 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, respectively, each of which provide further implementation guidance for ASU 2014-09.

The standard may be applied retrospectively to each prior period presented, or using the modified retrospective approach, with the cumulative effect recognized as of the date of initial application. The Company anticipates adopting the standard effective January 1, 2018, using the modified retrospective approach. The Company is continuing to identify any necessary changes to its systems, processes, and internal controls to meet the standard’s reporting and disclosure requirements. Based upon evaluations to date, the Company does not anticipate any significant system, process, or internal control changes. The Company continues to progress in its evaluation of the impact of the adoption of the standard on other areas of its consolidated financial statements and disclosures, and anticipates additional required disclosures but does not anticipate a material effect on its reported revenue, its net income, or its accounting for deferred commissions balances.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Operations and Comprehensive Income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosures. However, the Company anticipates that this standard will have a material impact on its financial position, primarily due to office space operating leases, for which the Company will be required to recognize lease assets and lease liabilities on its Consolidated Balance Sheets. The Company will continue to assess the potential impacts of this standard, including the impact the adoption of this guidance will have on its results of operations or cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (step 2 of the goodwill impairment test) and instead requires only a one-step quantitative impairment test, performed by comparing the fair value of goodwill with its carrying amount. ASU 2017-04 is effective on a prospective basis effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

3. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term and long-term investments and contingent consideration. The fair value of these financial assets and liabilities was determined based on three levels of input as follows: 

 

Level 1. Quoted prices in active markets for identical assets and liabilities;

 

Level 2. Observable inputs other than quoted prices in active markets; and

 

Level 3. Unobservable inputs.

8


 

The fair value hierarchy of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

September 30,

2017

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

3,452

 

 

$

3,452

 

 

$

 

 

$

 

Short-term investments(2)

 

 

8,764

 

 

 

 

 

 

8,764

 

 

 

 

Long-term investments(2)

 

 

3,042

 

 

 

 

 

 

3,042

 

 

 

 

Total assets

 

$

15,258

 

 

$

3,452

 

 

$

11,806

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

December 31, 2016

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

4,301

 

 

$

4,301

 

 

$

 

 

$

 

Short-term investments(2)

 

 

10,988

 

 

 

 

 

 

10,988

 

 

 

 

Long-term investments(2)

 

 

7,801

 

 

 

 

 

 

7,801

 

 

 

 

Total assets

 

$

23,090

 

 

$

4,301

 

 

$

18,789

 

 

$

 

 

(1)

Included in cash and cash equivalents on the accompanying Consolidated Balance Sheets; valued at quoted market prices in active markets.

(2)

Short-term and long-term investments consist of municipal bonds, corporate bonds, U.S. Treasury securities, and government agency bonds; their fair value is calculated using an interest rate yield curve for similar instruments. 

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:

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Cash

 

$

15,801

 

 

$

14,184

 

Money market funds

 

 

3,452

 

 

 

4,301

 

Total cash and cash equivalents

 

$

19,253

 

 

$

18,485

 

 

9


 

The Company’s short-term and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders’ equity, net of tax. The cumulative unrealized loss, net of taxes, was $10 and $30 as of September 30, 2017 and December 31, 2016, respectively. Realized gains and losses on the sale of these investments are determined using the specific identification method. There were no realized gains or losses during the three or nine months ended September 30, 2017 or 2016.

Short-term and long-term investments consisted of the following:

 

 

 

September 30, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,998

 

 

$

 

 

$

(3

)

 

$

1,995

 

Government agency bonds

 

 

2,005

 

 

 

 

 

 

(2

)

 

 

2,003

 

Municipal bonds

 

 

5,815

 

 

 

 

 

 

(8

)

 

 

5,807

 

Corporate bonds

 

 

2,003

 

 

 

 

 

 

(2

)

 

 

2,001

 

Total short-term and long-term investments

 

$

11,821

 

 

$

 

 

$

(15

)

 

$

11,806

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,998

 

 

$

 

 

$

(1

)

 

$

1,997

 

Government agency bonds

 

 

5,012

 

 

 

1

 

 

 

(2

)

 

 

5,011

 

Municipal bonds

 

 

9,817

 

 

 

 

 

 

(42

)

 

 

9,775

 

Corporate bonds

 

 

2,009

 

 

 

 

 

 

(3

)

 

 

2,006

 

Total short-term and long-term investments

 

$

18,836

 

 

$

1

 

 

$

(48

)

 

$

18,789

 

 

The Company had nineteen debt securities in an unrealized loss position at September 30, 2017. All of these securities have been in such a position for no more than fourteen months. The unrealized loss on those securities was approximately $16 and the fair value was $11.3 million. At December 31, 2016, the Company had twenty one debt securities in an unrealized loss position, and the unrealized loss on those securities was approximately $48 and the fair value was $13.8 million at that date. The Company uses specific identification when reviewing these investments for impairment. Because the Company does not intend to sell the investments that are in an unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their cost basis, the Company does not consider those investments with an unrealized loss to be other-than-temporarily impaired at September 30, 2017.

The Company’s investments have contractual maturity dates that range from November 2017 to January 2019. All income generated from these investments is recorded as interest income.

5. Goodwill and Intangible Assets

The following table summarizes the Company’s intangible assets, net:

 

 

 

 

 

 

 

September 30, 2017

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5

 

 

$

6,918

 

 

$

(6,909

)

 

$

9

 

Developed websites, technology and patents

 

 

10

 

 

 

1,323

 

 

 

(878

)

 

 

445

 

Trademark, trade name and domain name

 

8

 

 

 

1,797

 

 

 

(1,718

)

 

 

79

 

Proprietary user information database and internet traffic

 

 

5

 

 

 

1,195

 

 

 

(1,186

)

 

 

9

 

Total intangible assets

 

 

 

 

 

$

11,233

 

 

$

(10,691

)

 

$

542

 

10


 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5–9

 

 

$

6,826

 

 

$

(6,807

)

 

$

19

 

Developed websites, technology and patents

 

 

10

 

 

 

1,178

 

 

 

(705

)

 

 

473

 

Trademark, trade name and domain name

 

5–8

 

 

 

1,749

 

 

 

(1,664

)

 

 

85

 

Proprietary user information database and internet traffic

 

 

5

 

 

 

1,146

 

 

 

(1,122

)

 

 

24

 

Total intangible assets

 

 

 

 

 

$

10,899

 

 

$

(10,298

)

 

$

601

 

 

Intangible assets are amortized over their estimated useful lives, which range from five to ten years, using methods of amortization that are expected to reflect the estimated pattern of economic use. The remaining amortization expense will be recognized over a weighted-average period of approximately 3.08 years. Amortization expense was $0.1 million and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively. Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets which generate website traffic that the Company considers to be in support of selling and marketing activities. The Company did not write off any fully amortized intangible assets in the first nine months of 2017. The change in the gross carrying amount of intangible assets during the nine months ended September 30, 2017 was due to foreign currency translation gains and losses.

The Company expects amortization expense of intangible assets to be as follows:

 

Years Ending December 31:

 

Amortization

Expense

 

2017 (October 1 – December 31)

 

$

43

 

2018

 

 

109

 

2019

 

 

92

 

2020

 

 

78

 

2021

 

 

94

 

Thereafter

 

 

126

 

Total

 

$

542

 

 

Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. The Company did not have any intangible assets other than goodwill with indefinite lives as of September 30, 2017 or December 31, 2016. There were no indications of impairment as of September 30, 2017, and the Company believes that, as of the balance sheet dates presented, none of the Company’s goodwill or intangible assets was impaired.

11


 

6. 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:

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,074

 

 

$

(22

)

 

$

3,406

 

 

$

2,329

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding

 

 

27,554,586

 

 

 

27,539,655

 

 

 

27,521,244

 

 

 

30,650,164

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding

 

 

27,554,586

 

 

 

27,539,655

 

 

 

27,521,244

 

 

 

30,650,164

 

     Effect of potentially dilutive shares (1)

 

 

765,799

 

 

 

 

 

 

754,043

 

 

 

958,059

 

Total weighted average shares of common stock and vested,

     undelivered restricted stock units outstanding and potentially

     dilutive shares

 

 

28,320,385

 

 

 

27,539,655

 

 

 

28,275,287

 

 

 

31,608,223

 

Net Income (Loss) Per Share: