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Section 1: 10-Q (10-Q)

ttgt-10q_20190331.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 March 31, 2019

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  

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $0.001 per value per share

TTGT

The NASDAQ Stock Market LLC

As of April 30, 2019, the registrant had 27,595,866 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  March 31, 2019 and December 31, 2018

 

3

 

 

Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and 2018

 

4

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

 

5

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

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

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

28

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

29

Item 1A.

 

Risk Factors

 

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 6.

 

Exhibits

 

30

 

 

Signatures

 

31

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TECHTARGET, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,851

 

 

$

34,673

 

Short-term investments

 

 

 

 

 

500

 

Accounts receivable, net of allowance for doubtful accounts of $2,317 and $2,099

   as of March 31, 2019 and December 31, 2018, respectively

 

 

25,250

 

 

 

30,042

 

Prepaid taxes

 

 

620

 

 

 

1,834

 

Prepaid expenses and other current assets

 

 

3,544

 

 

 

3,069

 

Total current assets

 

 

68,265

 

 

 

70,118

 

Property and equipment, net

 

 

11,627

 

 

 

10,901

 

Goodwill

 

 

93,727

 

 

 

93,687

 

Intangible assets, net

 

 

809

 

 

 

849

 

Operating lease assets with right-of-use

 

 

26,873

 

 

 

 

Deferred tax assets

 

 

307

 

 

 

55

 

Other assets

 

 

1,004

 

 

 

853

 

Total assets

 

$

202,612

 

 

$

176,463

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,987

 

 

$

1,871

 

Current operating lease liability

 

 

2,438

 

 

 

 

Current portion of term loan

 

 

1,241

 

 

 

1,241

 

Accrued expenses and other current liabilities

 

 

2,386

 

 

 

3,260

 

Accrued compensation expenses

 

 

842

 

 

 

2,432

 

Income taxes payable

 

 

157

 

 

 

176

 

Contract liabilities

 

 

5,594

 

 

 

5,573

 

Total current liabilities

 

 

14,645

 

 

 

14,553

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term portion of term loan

 

 

23,404

 

 

 

23,714

 

Non-current operating lease liability

 

 

28,894

 

 

 

 

Deferred rent

 

 

 

 

 

4,949

 

Deferred tax liabilities

 

 

544

 

 

 

662

 

Total liabilities

 

 

67,487

 

 

 

43,878

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value per share, 100,000,000 shares authorized,

   54,246,261 shares issued and 27,693,293 shares outstanding at

   March 31, 2019 and 54,117,325 shares issued and 27,791,045 shares

   outstanding at December 31, 2018

 

 

54

 

 

 

54

 

Treasury stock, 26,552,968 shares at March 31, 2019 and 26,326,280

   shares at December 31, 2018, at cost

 

 

(181,030

)

 

 

(177,905

)

Additional paid-in capital

 

 

309,348

 

 

 

307,014

 

Accumulated other comprehensive loss

 

 

(174

)

 

 

(215

)

Retained earnings

 

 

6,927

 

 

 

3,637

 

Total stockholders’ equity

 

 

135,125

 

 

 

132,585

 

Total liabilities and stockholders’ equity

 

$

202,612

 

 

$

176,463

 

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Revenues

 

$

29,972

 

 

$

27,299

 

Cost of revenues(1)

 

 

7,012

 

 

 

6,725

 

Gross profit

 

 

22,960

 

 

 

20,574

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing(1)

 

 

12,446

 

 

 

11,355

 

Product development(1)

 

$

1,987

 

 

$

2,118

 

General and administrative(1)

 

 

3,022

 

 

 

3,399

 

Depreciation and amortization, excluding depreciation of $13 included in cost of

   revenues in 2019

 

 

1,130

 

 

 

1,108

 

Total operating expenses

 

 

18,585

 

 

 

17,980

 

Operating income

 

 

4,375

 

 

 

2,594

 

Interest and other expense, net

 

 

(137

)

 

 

(200

)

Income before provision for income taxes

 

 

4,238

 

 

 

2,394

 

Provision for income taxes

 

 

948

 

 

 

300

 

Net income

 

$

3,290

 

 

$

2,094

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain on investments (net of tax provision of $1, 2018)

 

$

 

 

$

4

 

Foreign currency translation gain

 

 

41

 

 

 

134

 

Other comprehensive income

 

 

41

 

 

 

138

 

Comprehensive income

 

$

3,331

 

 

$

2,232

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.08

 

Diluted

 

$

0.12

 

 

$

0.07

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

27,805

 

 

 

27,513

 

Diluted

 

 

28,206

 

 

 

28,512

 

 

(1)

Amounts include stock-based compensation expense as follows:

 

Cost of revenues

 

$

40

 

 

$

31

 

Selling and marketing

 

 

1,691

 

 

 

827

 

Product development

 

 

92

 

 

 

20

 

General and administrative

 

 

639

 

 

 

624

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 

4


 

TechTarget, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

 

 

 

For the three months ended March 31, 2019

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

$0.001

Par Value

 

 

Number of

Shares

 

 

Cost

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

(Loss)

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2018

 

 

54,117,325

 

 

$

54

 

 

 

26,326,280

 

 

$

(177,905

)

 

$

307,014

 

 

$

(215

)

 

$

3,637

 

 

$

132,585

 

Issuance of common stock from exercise of options

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Issuance of common stock from restricted stock awards

 

 

112,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common stock through stock buyback

 

 

 

 

 

 

 

 

220,297

 

 

 

(3,125

)

 

 

 

 

 

 

 

 

 

 

 

(3,125

)

Impact of net settlements

 

 

6,391

 

 

 

 

 

 

6,391

 

 

 

 

 

 

(868

)

 

 

 

 

 

 

 

 

(868

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,179

 

 

 

 

 

 

 

 

 

3,179

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on foreign currency exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,290

 

 

 

3,290

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,331

 

Balance, March 31, 2019

 

 

54,246,261

 

 

$

54

 

 

 

26,552,968

 

 

$

(181,030

)

 

$

309,348

 

 

$

(174

)

 

$

6,927

 

 

$

135,125

 

 

 

 

For the three months ended March 31, 2018

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

$0.001

Par Value

 

 

Number of

Shares

 

 

Cost

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

(Loss)

 

 

Retained

Earnings

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2017

 

 

53,338,297

 

 

$

53

 

 

 

25,855,182

 

 

$

(170,816

)

 

$

300,763

 

 

$

64

 

 

$

(9,318

)

 

$

120,746

 

Issuance of common stock from exercise of options

 

 

74,375

 

 

 

 

 

 

 

 

 

 

 

 

406

 

 

 

 

 

 

 

 

 

406

 

Issuance of common stock from restricted stock awards

 

 

38,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common stock through stock buyback

 

 

 

 

 

 

 

 

112,303

 

 

 

(1,613

)

 

 

 

 

 

 

 

 

 

 

 

(1,613

)

Impact of net settlements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(522

)

 

 

 

 

 

 

 

 

(522

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,501

 

 

 

 

 

 

 

 

 

1,501

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Unrealized gain on foreign currency exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134

 

 

 

 

 

 

134

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,094

 

 

 

2,094

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,232

 

Balance, March 31, 2018

 

 

53,450,852

 

 

$

53

 

 

 

25,967,485

 

 

$

(172,429

)

 

$

302,148

 

 

$

202

 

 

$

(7,224

)

 

$

122,750

 

See accompanying Notes to Consolidated Financial Statements.

 

5


 

TechTarget, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,290

 

 

$

2,094

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,143

 

 

 

1,108

 

Provision for bad debt

 

 

210

 

 

 

245

 

Amortization of investment premiums

 

 

 

 

 

34

 

Stock-based compensation

 

 

2,462

 

 

 

1,502

 

Amortization of debt issuance costs

 

 

2

 

 

 

28

 

Deferred tax provision

 

 

(362

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,582

 

 

 

(646

)

Prepaid expenses and other current assets

 

 

(714

)

 

 

(859

)

Other assets

 

 

(145

)

 

 

1

 

Accounts payable

 

 

115

 

 

 

306

 

Income taxes payable

 

 

1,038

 

 

 

490

 

Accrued expenses and other current liabilities

 

 

(880

)

 

 

(446

)

Operating lease right-of-use, net

 

 

(84

)

 

 

-

 

Accrued compensation expenses

 

 

(874

)

 

 

(413

)

Contract liabilities

 

 

22

 

 

 

382

 

Other liabilities

 

 

(1

)

 

 

(31

)

Net cash provided by operating activities

 

 

9,804

 

 

 

3,795

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment, and other capitalized assets

 

 

(1,833

)

 

 

(2,598

)

Proceeds from sales and maturities of investments

 

 

500

 

 

 

2,500

 

Net cash used in investing activities

 

 

(1,333

)

 

 

(98

)

Financing activities:

 

 

 

 

 

 

 

 

Tax withholdings related to net share settlements

 

 

(868

)

 

 

(522

)

Purchase of treasury shares and related costs

 

 

(3,125

)

 

 

(1,613

)

Proceeds from exercise of stock options

 

 

23

 

 

 

406

 

Term loan principal payment

 

 

(313

)

 

 

(2,500

)

Net cash used in financing activities

 

 

(4,283

)

 

 

(4,229

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(10

)

 

 

(12

)

Net increase (decrease) in cash and cash equivalents

 

 

4,178

 

 

 

(544

)

Cash and cash equivalents at beginning of period

 

 

34,673

 

 

 

25,966

 

Cash and cash equivalents at end of period

 

$

38,851

 

 

$

25,422

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for taxes, net

 

$

121

 

 

$

62

 

Property and equipment included in accounts payable and in accrued

   expenses and other liabilities

 

$

 

 

$

429

 

See accompanying Notes to Consolidated Financial Statements.

6


 

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 market categories including: Security; Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; and ANCL Channel.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these Notes to Consolidated Financial Statements. 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, 2018, 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 three months of 2019, other than those related to leases resulting from the adoption of a new accounting pronouncement, as described in this Note 2 under “Leases”.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, TechTarget Securities Corporation (“TSC”), TechTarget Limited, TechTarget (HK) Limited (“TTGT HK”), TechTarget (Australia) Pty Ltd., TechTarget (Singapore) Pte Ltd., E-Magine Médias SAS (“LeMagIT”) and TechTarget Germany GmbH. TSC is a Massachusetts corporation. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TTGT HK is a subsidiary incorporated in Hong Kong in order to facilitate the Company’s activities in the Asia-Pacific region. In 2018, TechTarget modified its PRC operations consolidating its activities with other TechTarget locations.   TechTarget (Beijing) Information Technology Consulting Co. Ltd.  (“TTGT Consulting”) and Keji Wangtuo Information Technology Co., Ltd., (“KWIT”), which were incorporated under the laws of the People’s Republic of China (“PRC”), were closed during 2018. TechTarget (Australia) Pty Ltd. and TechTarget (Singapore) Pte Ltd. are the entities through which the Company does business in Australia and Singapore, respectively; LeMagIT and TechTarget Germany GmbH, both wholly-owned subsidiaries of TechTarget Limited, are entities through which the Company does business in France and Germany, respectively.

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, 2018.

7


 

Reclassifications

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, 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 its revenues from the sale of targeted marketing and advertising campaigns, 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.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

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 adopted ASU 2016-02 in the first quarter of 2019 using the modified retrospective approach, and elected the package of practical expedients permitted under the transition guidance. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract was or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019. We also elected to combine our lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term. The Company recorded operating lease assets with right-of-use of $27.5 and $2.9 current operating lease liability and $29.2 non-current operating lease liability as of January 1, 2019, of which $4.9 million and $0.3 million were reclassified from deferred rent and prepaid, respectively.

Accounting Guidance Not Yet Adopted

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.

8


 

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

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.

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

($ in thousands)

 

Total by Geographic Area:

 

 

 

 

 

 

 

 

North America:

 

$

20,278

 

 

$

18,850

 

International:

 

 

9,694

 

 

 

8,449

 

Total Revenues

 

$

29,972

 

 

$

27,299

 

 

Contract Liabilities

Timing may differ between the satisfaction of performance obligations and the invoicing and collections 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. 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 customer 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 the contract liabilities on the accompanying Consolidated Balance Sheets were $3.6 and $3.5 million at March 31, 2019 and December 31, 2018, respectively.

 

 

 

Contract Liabilities

 

Year-to-Date Activity

 

(in thousands)

 

Balance at December 31, 2018

 

$

5,573

 

Deferral of revenue

 

 

1,946

 

Recognition of previously unearned revenue

 

 

(1,925

)

Balance at March 31, 2019

 

$

5,594

 

 

The Company elected to apply the following practical expedients:

 

Existence of a Significant Financing Component in a Contract.  As a practical expedient, the Company has not assessed whether a contract has a significant financing component because the Company expects at contract inception that the period between payment by the customer and the transfer of promised goods or services by the Company to the customer will be one year or less. Payment terms and conditions vary by contract type, although terms generally include requirement of payment within 30 to 90 days. In addition, the Company has determined that the payment terms that the Company provides to its customers are structured primarily for reasons other than the provision of financing to the customer.

 

Costs to Fulfill a Contract.  The Company’s revenues are primarily generated from customer contracts that are for one year or less. Costs primarily consist of incentive compensation paid based on the achievements of sales targets in a given period for related revenue streams and are recognized in the month when the revenue is earned. As a practical expedient, for amortization periods which are determined to be one year or less, the Company expenses any incremental costs of obtaining the contract with a customer when incurred. For those customer contracts greater than one year, the Company capitalizes and amortizes the expenses over the period of benefit.

9


 

 

Revenues Invoiced.  The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

4. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term and long-term investments and contingent consideration. The Company’s remaining short-term investments matured in the first quarter of 2019, therefore as of March 31, 2019 there are no investments measured at fair value. Additionally, the Company switched banks and the money market accounts are in bank deposits and are not quoted instruments. As such they are all considered cash. The fair value of these financial assets and liabilities for 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 carried at fair value and measured on a recurring basis is as follows:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

December 31, 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)

 

$

15,070

 

 

$

15,070

 

 

$

-

 

 

$

 

Short-term investments(2)

 

 

500

 

 

 

 

 

 

500

 

 

 

 

Total assets

 

$

15,570

 

 

$

15,070

 

 

$

500

 

 

$

 

 

(1)

Included in cash and cash equivalents on the accompanying Consolidated Balance Sheets; All accounts are in bank deposits and are not quoted instruments. As such they are all considered cash.

(2)

Short-term U.S. Treasury securities, their fair value is calculated using an interest rate yield curve for similar instruments.

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:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Cash

 

$

38,851

 

 

$

19,603

 

Money market funds

 

 

 

 

 

15,070

 

Total cash and cash equivalents

 

$

38,851

 

 

$

34,673

 

 

The Company’s short-term investments are accounted for as available for sale securities. 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 $15 as of December 31, 2018. The Company’s investment matured in the first quarter of 2019. 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 months ended March 31, 2019 or 2018.

10


 

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

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term and long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

500

 

 

$

 

 

$

 

 

$

500

 

Total short-term and long-term investments

 

$

500

 

 

$

 

 

$

 

 

$

500

 

 

The Company’s investment had a contractual maturity date in January 2019. All income generated from investments is recorded as interest income.

6. Goodwill and Intangible Assets

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

 

 

 

 

 

 

 

March 31, 2019

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5-17

 

 

$

6,512

 

 

$

(6,272

)

 

$

240

 

Developed websites, technology and patents

 

 

10

 

 

 

1,476

 

 

 

(960

)

 

 

516

 

Trademark, trade name and domain name

 

5-8

 

 

 

1,788

 

 

 

(1,741

)

 

 

47

 

Proprietary user information database and internet traffic

 

 

5

 

 

 

1,117

 

 

 

(1,117

)

 

 

 

Non-Compete agreement

 

 

1.5

 

 

 

10

 

 

 

(4

)

 

 

6

 

Total intangible assets

 

 

 

 

 

$

10,903

 

 

$

(10,094

)

 

$

809

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

Estimated

Useful Lives

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

 

Customer, affiliate and advertiser relationships

 

5-17

 

 

$

6,500

 

 

$

(6,256

)

 

$

244