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Section 1: 10-Q (10-Q)

ttgt-10q_20180930.htm

 

Te sec

 

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, 2018

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark 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

 

  

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, 2018, the registrant had 28,001,671 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, 2018 and December 31, 2017

 

3

 

 

Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017

 

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

 

5

 

 

Notes to Consolidated Financial Statements

 

6

Item 2.

 

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

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 6.

 

Exhibits

 

33

 

 

Signatures

 

34

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TECHTARGET, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,447

 

 

$

25,966

 

Short-term investments

 

 

3,000

 

 

 

7,650

 

Accounts receivable, net of allowance for doubtful accounts of $1,975 and $1,783 as

   of September 30, 2018 and December 31, 2017, respectively

 

 

27,621

 

 

 

29,601

 

Prepaid taxes

 

 

2,171

 

 

 

1,303

 

Prepaid expenses and other current assets

 

 

3,751

 

 

 

3,088

 

Total current assets

 

 

65,990

 

 

 

67,608

 

Property and equipment, net

 

 

10,980

 

 

 

9,786

 

Long-term investments

 

 

 

 

 

496

 

Goodwill

 

 

93,709

 

 

 

93,793

 

Intangible assets, net

 

 

892

 

 

 

506

 

Deferred tax assets

 

 

526

 

 

 

98

 

Other assets

 

 

869

 

 

 

882

 

Total assets

 

$

172,966

 

 

$

173,169

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,960

 

 

$

1,542

 

Current portion of term loan

 

 

9,888

 

 

 

9,888

 

Accrued expenses and other current liabilities

 

 

3,130

 

 

 

3,343

 

Accrued compensation expenses

 

 

1,394

 

 

 

1,397

 

Income taxes payable

 

 

141

 

 

 

218

 

Contract liabilities

 

 

5,275

 

 

 

7,598

 

Total current liabilities

 

 

21,788

 

 

 

23,986

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term portion of term loan

 

 

14,898

 

 

 

22,339

 

Deferred rent

 

 

5,027

 

 

 

5,259

 

Deferred tax liabilities

 

 

396

 

 

 

838

 

Total liabilities

 

 

42,109

 

 

 

52,422

 

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,

   54,082,275 shares issued and 28,001,671 shares outstanding at September 30, 2018

   and 53,338,297 shares issued and 27,483,115 shares outstanding at December 31,

   2017

 

 

54

 

 

 

53

 

Treasury stock, 26,080,604 shares at September 30, 2018 and 25,855,182 shares at

   December 31, 2017, at cost

 

 

(174,780

)

 

 

(170,816

)

Additional paid-in capital

 

 

304,789

 

 

 

300,763

 

Accumulated other comprehensive (loss) income

 

 

(171

)

 

 

65

 

Retained earnings (accumulated deficit)

 

 

965

 

 

 

(9,318

)

Total stockholders’ equity

 

 

130,857

 

 

 

120,747

 

Total liabilities and stockholders’ equity

 

$

172,966

 

 

$

173,169

 

See accompanying Notes to Consolidated Financial Statements.

3


 

TechTarget, Inc.

Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share data)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

$

30,742

 

 

$

28,012

 

 

$

89,513

 

 

$

78,253

 

Cost of revenues(1)

 

 

7,445

 

 

 

6,951

 

 

 

21,294

 

 

 

20,972

 

Gross profit

 

 

23,297

 

 

 

21,061

 

 

 

68,219

 

 

 

57,281

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing(1)

 

 

12,479

 

 

 

11,568

 

 

 

35,254

 

 

 

33,006

 

Product development(1)

 

 

2,340

 

 

 

2,209

 

 

 

6,527

 

 

 

6,168

 

General and administrative(1)

 

 

3,938

 

 

 

3,288

 

 

 

10,663

 

 

 

9,542

 

Depreciation and amortization

 

 

1,156

 

 

 

1,109

 

 

 

3,404

 

 

 

3,375

 

Total operating expenses

 

 

19,913

 

 

 

18,174

 

 

 

55,848

 

 

 

52,091

 

Operating income

 

 

3,384

 

 

 

2,887

 

 

 

12,371

 

 

 

5,190

 

Interest and other expense, net

 

 

(362

)

 

 

(190

)

 

 

(1,206

)

 

 

(447

)

Income before (benefit from) provision for income taxes

 

 

3,022

 

 

 

2,697

 

 

 

11,165

 

 

 

4,743

 

(Benefit from) provision for income taxes

 

 

(747

)

 

 

623

 

 

 

882

 

 

 

1,337

 

Net income

 

$

3,769

 

 

$

2,074

 

 

$

10,283

 

 

$

3,406

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments (net of tax provision of

   $5, $3, $8 and $11, respectively)

 

$

1

 

 

$

6

 

 

$

13

 

 

$

20

 

Foreign currency translation (loss) gain

 

 

(120

)

 

 

71

 

 

 

(249

)

 

 

233

 

Other comprehensive (loss) income

 

 

(119

)

 

 

77

 

 

 

(236

)

 

 

253

 

Comprehensive income

 

$

3,650

 

 

$

2,151

 

 

$

10,047

 

 

$

3,659

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

0.08

 

 

$

0.37

 

 

$

0.12

 

Diluted

 

$

0.13

 

 

$

0.07

 

 

$

0.36

 

 

$

0.12

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,827

 

 

 

27,555

 

 

 

27,627

 

 

 

27,521

 

Diluted

 

 

28,764

 

 

 

28,320

 

 

 

28,711

 

 

 

28,275

 

 

(1)

Amounts include stock-based compensation expense as follows:

 

Cost of revenues

 

$

53

 

 

$

13

 

 

$

114

 

 

$

38

 

Selling and marketing

 

 

1,608

 

 

 

1,284

 

 

 

3,263

 

 

 

3,161

 

Product development

 

 

73

 

 

 

18

 

 

 

113

 

 

 

92

 

General and administrative

 

 

1,394

 

 

 

811

 

 

 

2,654

 

 

 

2,018

 

 

See accompanying Notes to Consolidated Financial Statements.

4


 

TechTarget, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,283

 

 

$

3,406

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,404

 

 

 

3,375

 

Provision for bad debt

 

 

701

 

 

 

606

 

Amortization of investment premiums

 

 

68

 

 

 

214

 

Stock-based compensation

 

 

6,144

 

 

 

5,309

 

Amortization of debt issuance costs

 

 

84

 

 

 

81

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,158

 

 

 

(7,447

)

Prepaid expenses and other current assets

 

 

(1,072

)

 

 

(759

)

Other assets

 

 

1

 

 

 

44

 

Accounts payable

 

 

266

 

 

 

(618

)

Income taxes payable

 

 

(1,391

)

 

 

1,581

 

Accrued expenses and other current liabilities

 

 

270

 

 

 

(130

)

Accrued compensation expenses

 

 

8

 

 

 

519

 

Contract liabilities

 

 

(2,322

)

 

 

3,159

 

Other liabilities

 

 

(229

)

 

 

(321

)

Net cash provided by operating activities

 

 

17,373

 

 

 

9,019

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment, and other capitalized assets

 

 

(4,970

)

 

 

(2,761

)

Purchases of investments

 

 

 

 

 

(500

)

Proceeds from sales and maturities of investments

 

 

5,100

 

 

 

7,300

 

Acquisitions of businesses, net

 

 

(370

)

 

 

 

Net cash (used for) provided by investing activities

 

 

(240

)

 

 

4,039

 

Financing activities:

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements

 

 

(3,073

)

 

 

(3,789

)

Purchase of treasury shares and related costs

 

 

(3,964

)

 

 

(5,222

)

Proceeds from exercise of stock options

 

 

956

 

 

 

561

 

Debt issuance costs

 

 

 

 

 

(50

)

Term loan principal payment

 

 

(7,500

)

 

 

(3,750

)

Net cash used in financing activities

 

 

(13,581

)

 

 

(12,250

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(71

)

 

 

(40

)

Net increase in cash and cash equivalents

 

 

3,481

 

 

 

768

 

Cash and cash equivalents at beginning of period

 

 

25,966

 

 

 

18,485

 

Cash and cash equivalents at end of period

 

$

29,447

 

 

$

19,253

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for (refunded from) taxes, net

 

$

2,734

 

 

$

(166

)

Property and equipment included in accounts payable and in accrued expenses and other

     liabilities

 

$

408

 

 

$

 

 

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 and business professionals have become increasingly specialized, and they have come to rely on the Company’s sector-specific websites for purchasing decision support. The Company’s content platform enables IT and business professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. At critical stages of the purchase decision process, these content offerings, through different channels, meet IT and business professionals’ needs for expert, peer, and IT vendor information and provide a platform on which IT vendors can launch targeted marketing campaigns which generate measurable return on investment. Based upon the logical clustering of members’ respective job responsibilities and the marketing focus of the products being promoted by the Company’s customers, the Company categorizes its content offerings to address the key market opportunities and audience extensions across a portfolio of distinct media groups including: Security; Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; and Channel.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these Notes to Consolidated Financial Statements. 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, 2017, and in this note to the consolidated financial statements. There were no material changes to the Company’s critical accounting policies and use of estimates during the first nine months of 2018, other than those related revenue recognition resulting from the adoption of a new accounting pronouncement, as described in this Note 2 under “Revenue Recognition”.

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”). In 2018, TechTarget began modifying its PRC operations and consolidating its activities with other TechTarget locations. 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.

6


 

Based on these contractual arrangements, the Company consolidates the financial results of KWIT as required by Accounting Standards Codification (“ASC”) subtopic 810-10, Consolidation: Overall, because the Company holds all the variable interests of KWIT through TTGT Consulting, which is the primary beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the aforementioned agreements, whereby the equity holders of KWIT assigned all of their voting rights underlying their equity interest in KWIT to TTGT Consulting. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of KWIT. All significant intercompany accounts and transactions among 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, 2017.

Reclassifications

Historically, the Company presented online revenues and online cost of revenues separately from events revenues and events cost of revenues. On the Consolidated Statements of Income and Comprehensive Income, the Company has combined these into a single line item for revenues and a single line item for cost of revenues, since the events product line, which was phased out in the first quarter of 2017, generated immaterial revenues and cost of revenues for the nine months ended September 30, 2017 and no revenues or cost of revenues in the other periods presented on the Consolidated Statements of Income and Comprehensive Income. These reclassifications are not material and had no effect on the total reported revenues or cost of revenues.

In addition, the Company historically presented depreciation expense and amortization expense as separate line items on the Consolidated Statements of Income and Comprehensive Income. Due to the immateriality of amortization expense, the Company has combined these expenses into a single line item. This reclassification had no effect on total operating expenses or net income.

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.

Revenue Recognition

The Company generates substantially all of its revenues from the sale of targeted marketing and sales services and advertising campaigns utilizing, which it delivers via its network of websites and data analytics solutions. Revenue is recognized when performance obligations are satisfied by transferring promised goods or services to customers, as determined by applying a five-step process consisting of: a) identifying the contract, or contracts, with a customer, b) identifying the performance obligations in the contract, c) determining the transaction price, d) allocating the transaction price to the performance obligations in the contract, and e) recognizing revenue when, or as, performance obligations are satisfied.  

7


 

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (“Topic 605”). Topic 606 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. Topic 606 provides that an entity should apply a five-step approach for recognizing revenue, as described above in this Note 2 under “Revenue Recognition.” This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted the standard effective January 1, 2018, using the modified retrospective approach. Under this method, the Company evaluated contracts that were in effect at the beginning of fiscal 2018 as if those contracts had been accounted for under Topic 606. Under the modified retrospective approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with historical, pre-Topic 606 accounting. The adoption of the standard did not have a material effect on the Company’s consolidated financial statements, systems, processes, or internal controls.

Accounting Guidance Not Yet Adopted

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 twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Income 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 will adopt ASU 2016-02 in the first quarter of 2019 using the modified retrospective approach, and intends to elect the package of practical expedients permitted under the transition guidance. 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 the ROU assets and lease liabilities on its Consolidated Balance Sheets. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosures, [including changes, if any, to processes and internal controls.]

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 standard will have on its consolidated financial statements and disclosures but does not expect that it will have a material impact.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures but does not expect that it will have a material impact.

3. Revenues

Revenue Recognition

On January 1, 2018, the Company adopted Topic 606 and, as such, recognizes revenue when performance obligations are satisfied by transferring promised goods or services to customers in an amount the Company expects to receive in exchange for those goods or services. The Company enters into contracts that can include various combinations of its offerings, which are generally capable of being distinct and accounted for as separate performance obligations.

The Company’s offerings consist of IT Deal AlertTM and Core categories.

8


 

IT Deal Alert provides a suite of products that leverages detailed purchase intent data that we collect about end-user IT organizations. Through proprietary scoring methodologies, we use this insight to help our customers identify and prioritize accounts. We provide this insight through Priority EngineTM, TargetROITM, Qualified Sales OpportunitiesTM, Deal DataTM, and ResearchTM. Revenue from Priority Engine allows customers access to purchase intent data through the life of the contract and is recognized ratably over the contract period. Target ROI contains Priority Engine as well as other duration based demand solutions, which are discussed below, and revenue from Target ROI is recognized ratably over the contract period using the same time-based measure of progress for each of the distinct performance obligations included within TargetROI. Revenue from Qualified Sales Opportunities, Deal Data and Research is recognized at the point in time when control is transferred to the customer, which occurs when the related reports are provided to the customer.

Core consists primarily of demand solutions, brand solutions, and custom content. Demand solutions offerings provide the Company’s customers the opportunity to maximize return on investment by capturing sales leads from the distribution and promotion of content to its audience. Demand solutions may contain the following components: white papers, webcasts, podcasts, videocasts and virtual trade shows, and content sponsorship, which the Company may utilize at its discretion. Brand solutions provide the Company’s customers to target audiences of IT and business professionals actively researching information related to their products and services. This can be accomplished through on-network or off-network branding as well as through the hosting of microsites. The Company will at times create custom content, such as white papers, case studies, webcasts, or videos, to our customers’ specifications through its Custom Content team.

Revenue from demand solutions is primarily recognized when the transfer of control occurs. For certain demand solutions, the Company generates revenue on a cost per lead basis and the transfer of control occurs at the point in time each lead is generated. Certain of the contracts within demand solutions are duration-based campaigns which, in the event of customer cancellation, provide the Company with an enforceable right to a proportional payment for the portion of the campaign based on services provided. Accordingly, revenue from duration-based campaigns are recognized using a time-based measure of progress, which the Company believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously transferred throughout the contract period.

Revenue from brand solutions is primarily recognized when the placement of the branding impression appears. Revenue from microsites is recognized ratably over the life of the contract. Revenue from custom content creation is recognized over the expected period of performance using a single measure of progress, typically based on hours incurred.

The Company’s offerings can be sold separately but the Company’s contracts often involve multiple offerings. The Company evaluates all contracts with customers at inception to determine whether they contain separate performance obligations. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. If the contract contains multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative standalone selling price. The Company has concluded that each of the performance obligations described above is distinct. As discussed above, certain demand generation solutions have different revenue recognition patterns. The Company evaluated the relevant contract terms associated with the individual solutions to determine the appropriate revenue recognition pattern.

To determine standalone selling price for the individual performance obligations in the arrangement, the Company uses an estimate of the observable selling prices in separate transactions. The Company establishes best estimates considering multiple factors including, but not limited to, class of client, size of transaction, available inventory, pricing strategies and market conditions. The Company uses a range of amounts to estimate stand-alone selling price when it sells the goods and services separately and needs to determine whether a discount is to be allocated based upon the relative stand-alone selling price to the various goods and services.

Disaggregation of Revenue

The following table depicts the disaggregation of revenue according to categories consistent with how the Company evaluates its financial performance. International revenue consists of international geo-targeted campaigns, which are campaigns targeted at an audience of members outside of North America.

9


 

 

 

 

Three Months Ended September 30,

 

 

Percent

 

 

Nine Months Ended September 30,

 

 

Percent

 

 

 

2018

 

 

2017

 

 

Change

 

 

2018

 

 

2017

 

 

Change

 

 

 

($ in thousands)

 

 

 

 

 

 

($ in thousands)

 

 

 

 

 

Total by Geographic Area:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America IT Deal Alert

 

$

11,921

 

 

$

9,953

 

 

 

20

%

 

$

32,316

 

 

$

26,563

 

 

 

22

%

North America Core

 

 

9,026

 

 

 

9,374

 

 

 

(4

)%

 

 

28,667

 

 

 

26,444

 

 

 

8

%

Total North America

 

 

20,947

 

 

 

19,327

 

 

 

8

%

 

 

60,983

 

 

 

53,007

 

 

 

15

%

International:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International IT Deal Alert

 

 

4,043

 

 

 

3,451

 

 

 

17

%

 

 

11,309

 

 

 

8,869

 

 

 

28

%

International Core

 

 

5,752

 

 

 

5,234

 

 

 

10

%

 

 

17,221

 

 

 

16,209

 

 

 

6

%

Total International

 

 

9,795

 

 

 

8,685

 

 

 

13

%

 

 

28,530

 

 

 

25,078

 

 

 

14

%

Total Online by Product:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT Deal Alert:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America IT Deal Alert

 

$

11,921

 

 

$

9,953

 

 

 

20

%

 

$

32,316

 

 

$

26,563

 

 

 

22

%

International IT Deal Alert

 

 

4,043

 

 

 

3,451

 

 

 

17

%

 

 

11,309

 

 

 

8,869

 

 

 

28

%

Total IT Deal Alert

 

 

15,964

 

 

 

13,404

 

 

 

19

%

 

 

43,625

 

 

 

35,432

 

 

 

23

%

Core:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America Core

 

 

9,026

 

 

 

9,374

 

 

 

(4

)%

 

 

28,667

 

 

 

26,444

 

 

 

8

%

International Core

 

 

5,752

 

 

 

5,234

 

 

 

10

%

 

 

17,221

 

 

 

16,209

 

 

 

6

%

Total Core

 

 

14,778

 

 

 

14,608

 

 

 

1

%

 

 

45,888

 

 

 

42,653

 

 

 

8

%

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

168

 

 

 

(100

)%

Total Revenues

 

$

30,742

 

 

$

28,012

 

 

 

10

%

 

$

89,513

 

 

$

78,253

 

 

 

14

%

Deferred Revenue and Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to the Company’s contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. Deferred revenue is included in contract liabilities on the accompanying Consolidated Balance Sheets and was $2.3 million and $4.9 million at September 30, 2018 and December 31, 2017, respectively. Additionally, certain customers may receive credits, which are accounted for as a material right. The Company estimates these amounts based on the expected amount of future services to be provided to customers and allocates a portion of the transaction price to these material rights. The Company recognizes these material rights as the material rights are exercised. The resulting amounts included in contract liabilities on the accompanying Consolidated Balance Sheets were $2.9 million and $2.7 million at September 30, 2018 and December 31, 2017, respectively. During the first nine months of 2018, revenues of $3.4 million were recognized that had been included in the contract liabilities balance at December 31, 2017.

 

 

 

 

Contract Liabilities

 

Year-to-Date Activity

 

(in thousands)

 

Balance at December 31, 2017

 

$

4,088

 

Deferral of revenue

 

 

4,576

 

Recognition of previously unearned revenue

 

 

(3,389

)

Balance at September 30, 2018

 

$

5,275

 

The Company reduced its accounts receivable by $3.5 million from $29.6 million to $26.1 million as of January 1, 2018 as a result of the adoption of Topic 606. There was a corresponding reduction of $3.5 million to its deferred revenue balance from $7.6 million to $4.1 million as of January 1, 2018 as a result of the adoption of Topic 606.

Payment terms and conditions vary by contract type, although terms generally include requirement of payment within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not contain a financing component as they are generally less than one year. The Company increased its allowance for doubtful accounts by $0.7 million and had direct write-offs of $0.5 million, net of recoveries, during the nine months ended September 30, 2018.

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The Company elected to apply the following practical expedients and exemptions:

 

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

 

The Company expenses, as incurred, contract costs consisting of sales commissions and sales bonuses because the amortization period of the contract asset that would have otherwise been recognized would have been one year or less.

4. Fair Value Measurements

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

 

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

 

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

 

Level 3. Unobservable inputs.

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

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

September 30,

2018

 

 

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)

 

$

12,480

 

 

$

12,480

 

 

$

 

 

$

 

Short-term investments(2)

 

 

3,000

 

 

 

 

 

 

3,000

 

 

 

 

Total assets

 

$

15,480

 

 

$

12,480

 

 

$

3,000

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

December 31, 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)

 

$

7,155

 

 

$

7,155

 

 

$

 

 

$

 

Short-term investments(2)

 

 

7,650

 

 

 

 

 

 

7,650

 

 

 

 

Long-term investments(2)

 

 

496

 

 

 

 

 

 

496

 

 

 

 

Total assets

 

$

15,301

 

 

$

7,155

 

 

$

8,146

 

 

$

 

 

(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. 

11


 

5. Cash, Cash Equivalents, and Investments

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Cash equivalents are carried at cost, which approximates their fair market value. Cash and cash equivalents consisted of the following:

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Cash

 

$

16,967

 

 

$

18,811

 

Money market funds

 

 

12,480

 

 

 

7,155

 

Total cash and cash equivalents

 

$

29,447

 

 

$

25,966

 

 

The Company’s short-term and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive income, a component of stockholders’ equity, net of tax. The cumulative unrealized loss, net of taxes, was $4 and $17 as of September 30, 2018 and December 31, 2017, 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 nine months ended September 30, 2018 or 2017.

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

 

 

 

September 30, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,000

 

 

$

 

 

$

(2

)

 

$

998

 

Government agency bonds

 

 

500

 

 

 

 

 

 

-

 

 

 

500

 

Municipal bonds

 

 

1,005

 

 

 

 

 

 

(2

)

 

 

1,003

 

Corporate bonds

 

 

500

 

 

 

 

 

 

(1

)

 

 

499

 

Total short-term and long-term investments

 

$

3,005

 

 

$

 

 

$

(5

)

 

$

3,000

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

1,499

 

 

$

 

 

$

(6

)

 

$

1,493

 

Government agency bonds

 

 

1,003

 

 

 

 

 

 

(4

)

 

 

999

 

Municipal bonds

 

 

4,169

 

 

 

 

 

 

(14

)

 

 

4,155

 

Corporate bonds

 

 

1,502

 

 

 

 

 

 

(3

)

 

 

1,499

 

Total short-term and long-term investments

 

$

8,173

 

 

$