- Quarterly Report (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
o		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 (State or other jurisdiction of incorporation or organization)		04-3483216 (I.R.S. Employer Identification No.)
117 Kendrick Street, Suite 800 Needham, Massachusetts 02494 (Address of principal executive offices) (zip code)
(781) 657-1000 (Registrant's telephone number, including area code)

(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 ý No o

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 o No o

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


Large Accelerated Filer o		Accelerated Filer ý		Non-Accelerated Filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

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

The registrant had 42,039,208 shares of Common Stock, $0.001 par value per share, outstanding as of September 30, 2009.

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TABLE OF CONTENTS

Item

Explanatory Note		3
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008	4
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults upon Senior Securities	65
Item 4.	Submission of Matters to a Vote of Security Holders	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
	Signatures	67

EXPLANATORY NOTE

On November 9, 2009, TechTarget, Inc. filed a Form 8-K disclosing that it was delaying the filing of its Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009. The Company further disclosed that it had identified an improper accounting practice relating to certain customer credits that were improperly eliminated as liabilities on the Company's balance sheet. As a result, the Audit Committee of the Company's Board of Directors conducted an investigation into this matter with the assistance of counsel and forensic accounting experts. The Audit Committee has now completed its investigation and the Company is, this day, filing this Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009. Consistent with the Company's November 9, 2009 press release, the Audit Committee concluded that the improper conduct associated with the accounting practice was limited to a single individual who was promptly terminated from his position upon discovery of the practice. The Audit Committee's investigation found no other improper conduct in connection with any other accounting practice. To correct the improper accounting related to the customer credits, the Company has recorded a net adjustment for the quarter ended September 30, 2009.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TECHTARGET, INC.

Consolidated Balance Sheets

(In thousands, except share and per share data)

		September 30, 2009			December 31, 2008

		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	21,884		$	24,130
	Short-term investments		47,519			42,863
	Accounts receivable, net of allowance for doubtful accounts of $482 and $642 as of September 30, 2009 (unaudited) and December 31, 2008, respectively		15,623			17,622
	Prepaid expenses and other current assets		4,604			6,251
	Deferred tax assets		2,979			2,959

Total current assets			92,609			93,825
Property and equipment, net			3,502			3,904
Long-term investments			9,247			2,575
Goodwill			88,957			88,958
Intangible assets, net of accumulated amortization			13,680			17,242
Deferred tax assets			4,346			3,369
Other assets			93			139

Total assets		$	212,434		$	210,012

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of bank term loan payable	$	750		$	3,000
	Accounts payable		3,322			3,404
	Income taxes payable		59			—
	Accrued expenses and other current liabilities		1,850			2,908
	Accrued compensation expenses		638			702
	Deferred revenue		9,273			8,749

Total current liabilities			15,892			18,763
Long-term liabilities:
	Other liabilities		527			312

Total liabilities			16,419			19,075
Commitments (Note 10)			—			—
Stockholders' equity:
	Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding		—			—
	Common stock, $0.001 par value per share, 100,000,000 shares authorized, 42,039,208 and 41,616,963 shares issued and outstanding at September 30, 2009 (unaudited) and December 31, 2008, respectively		42			42
	Additional paid-in capital		230,850			221,597
	Warrants		2			2
	Accumulated other comprehensive loss		37			(77	)
	Accumulated deficit		(34,916	)		(30,627	)

Total stockholders' equity			196,015			190,937

Total liabilities and stockholders' equity		$	212,434		$	210,012

See accompanying notes.

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TECHTARGET, INC.

Consolidated Statements of Operations

(In thousands, except share and per share data)

			Three Months Ended September 30,					Nine Months Ended September 30,

			2009			2008		2009			2008
			(Unaudited)
Revenues:
	Online		$	18,191		$	20,420	$	52,274		$	57,701
	Events			4,865			5,496		10,991			16,743
	Print			—			1,080		—			3,430

Total revenues				23,056			26,996		63,265			77,874
Cost of revenues:
	Online(1)			4,789			5,462		14,445			16,113
	Events(1)			1,741			2,328		4,277			7,078
	Print			—			580		—			1,758

Total cost of revenues				6,530			8,370		18,722			24,949
Gross profit				16,526			18,626		44,543			52,925
Operating expenses:
	Selling and marketing(1)			8,644			8,161		24,183			25,490
	Product development(1)			2,276			2,788		6,551			8,440
	General and administrative(1)			5,486			3,662		13,469			10,915
	Depreciation			510			579		1,544			1,884
	Amortization of intangible assets			1,166			1,259		3,562			4,071

Total operating expenses				18,082			16,449		49,309			50,800
Operating income (loss)				(1,556	)		2,177		(4,766	)		2,125
Interest income (expense), net				130			248		194			934

Income (loss) before provision for income taxes				(1,426	)		2,425		(4,572	)		3,059
Provision for (benefit from) income taxes				12			1,718		(283	)		1,736

Net income (loss)			$	(1,438	)	$	707	$	(4,289	)	$	1,323

Net income (loss) per common share:
	Basic		$	(0.03	)	$	0.02	$	(0.10	)	$	0.03

	Diluted		$	(0.03	)	$	0.02	$	(0.10	)	$	0.03

Weighted average common shares outstanding:
	Basic			41,811,821			41,533,020		41,775,152			41,355,812

	Diluted			41,811,821			43,116,678		41,775,152			43,393,429


(1) Amounts include stock-based compensation expense as follows:
		Cost of online revenue		$ 95			$ 265		$ 407			$ 406
		Cost of events revenue		64			53		117			100
		Selling and marketing		1,479			1,057		4,285			3,796
		Product development		89			140		352			420
		General and administrative		2,521			648		4,331			2,107

See accompanying notes.

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TECHTARGET, INC.

Consolidated Statements of Cash Flows

(In thousands)

			Nine Months Ended September 30,

			2009			2008
			(Unaudited)
Operating Activities:
Net income (loss)			$	(4,289	)	$	1,323
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			5,106			5,955
	Provision for bad debt			105			378
	Amortization of investment premiums			1,247			—
	Stock-based compensation expense			9,492			6,829
	Non-cash interest expense			7			5
	Deferred tax benefit			(1,013	)		1,326
	Excess tax benefit—stock options			—			(1,015	)
	Changes in operating assets and liabilities, net of businesses acquired:
		Accounts receivable		1,901			(2,709	)
		Prepaid expenses and other current assets		1,285			(5,293	)
		Other assets		39			18
		Accounts payable		(79	)		(125	)
		Income taxes payable		59			(1,330	)
		Accrued expenses and other current liabilities		(1,058	)		(366	)
		Accrued compensation expenses		(65	)		(1,674	)
		Deferred revenue		525			2,528
		Other liabilities		283			(84	)

Net cash provided by operating activities				13,545			5,766
Investing activities:
Purchases of property and equipment, and other assets				(1,141	)		(1,527	)
Purchases of short-term investments				(20,899	)		(50,407	)
Purchases of long-term investments				(18,676	)		(7,885	)
Proceeds from sales and maturities of short-term investments				27,050			80,618
Proceeds from sales and maturities of long-term investments				—			41
Acquisition of assets				—			(50	)

Net cash provided by (used in) investing activities				(13,666	)		20,790
Financing activities:
Payments on bank term loan payable				(2,250	)		(2,250	)
Excess tax benefit—stock options				—			1,015
Proceeds from exercise of warrants and stock options				125			2,198

Net cash provided by (used in) financing activities				(2,125	)		963
Net increase (decrease) in cash and cash equivalents				(2,246	)		27,519
Cash and cash equivalents at beginning of period				24,130			10,693

Cash and cash equivalents at end of period			$	21,884		$	38,212

Supplemental disclosure of cash flow information:
Cash paid for interest			$	102		$	258

Cash paid (refunded) for taxes			$	(959	)	$	4,484

See accompanying notes.

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TECHTARGET, INC.

Notes to Consolidated Financial Statements

(In thousands, except share and per share data)

1. Organization and Operations

TechTarget, Inc. (the Company) is a leading provider of specialized online content that brings together buyers and sellers of corporate information technology, or IT, products. The Company sells customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases.

The Company's integrated content platform consists of a network of more than 60 websites that are complemented with targeted in-person events and specialized IT magazines. The Company discontinued publishing its specialized IT magazines in December 2008. During the critical stages of the purchase decision process, these content offerings meet IT professionals' needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high return on investment (ROI). As IT professionals have become increasingly specialized, they have come to rely on our sector-specific websites for purchasing decision support. The Company's content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. Based upon the logical clustering of users' respective job responsibilities and the marketing focus of the products that the Company's customers are advertising, content offerings are currently categorized across ten distinct media groups: Application Development; Channel; CIO/IT Strategy; Data Center and Virtualization Technologies; Enterprise Applications; Networking; Security; Storage; TechnologyGuide.com; and Vertical Software.

On November 9, 2009, the Company filed a Form 8-K disclosing that it was delaying the filing of its Quarterly Report on Form 10-Q for the third quarter of 2009. The Company further disclosed that it had identified an improper accounting practice relating to certain customer credits that were improperly eliminated as liabilities on the Company's balance sheet. As a result, the Company's Audit Committee conducted an investigation into this matter. The Audit Committee has completed its investigation and the Company has concluded that there were certain errors in its previously reported financial statements. In addition to the customer credit matter mentioned above, the Company disclosed in its Quarterly Report on Form 10-Q for the first quarter of 2009 that it corrected in the first quarter of 2009 an error in the amount of $284 related to interest income which should have been recorded in the fourth quarter of 2008. Whereas the error was previously corrected in Q1 2009, the $284 adjustment is not included in the adjustments described below.

To correct the customer credit errors, the Company recorded a net adjustment which increased accounts payable by $967 and decreased income before provision for income taxes by $967 during the quarter ended September 30, 2009. The aggregate net adjustment accumulated over several years and includes $57 from 2004 to 2006, $362 from 2007, $561 from 2008 and ($13) from the nine months ended September 30, 2009.

The Company corrected an error totaling $1.1 million during the third quarter of 2009 related to stock-based compensation expense that should have been recorded in the first and second quarters of 2009. The additional stock-based compensation expense relates to 1,925,000 restricted stock awards granted during the first quarter of 2009. The vesting for the restricted stock awards is contingent upon the Company achieving an annual financial performance goal. The stock-based compensation expense related to the restricted stock awards was initially recognized on a straight-line basis over the vesting period but should have been recognized using the accelerated attribution method.

The Company assessed the materiality of these errors, both quantitatively and qualitatively, and concluded that the adjustments are not material to the prior annual financial statements or to the

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

1. Organization and Operations (Continued)

interim financial statements for 2009. As a result, the Company recorded the correction of the errors in the quarter ended September 30, 2009.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, which include KnowledgeStorm, Inc., Bitpipe, Inc., TechTarget Securities Corporation and TechTarget Limited. KnowledgeStorm, Inc. and Bitpipe, Inc. are leading websites providing in-depth vendor generated content targeted toward corporate IT professionals. TechTarget Securities Corporation is a Massachusetts Securities Corporation incorporated in 2004. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of results to be expected for any other interim periods or for the full year. The information included in these consolidated financial statements should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this report and the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2008. The Company has evaluated subsequent events through the date of this filing.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company generates substantially all of its revenue from the sale of targeted advertising campaigns that are delivered via its network of websites, events and print publications. The Company

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

discontinued publishing print magazines in December 2008. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

Although each of the Company's online media offerings can be sold separately, most of the Company's online media sales involve multiple online offerings. Because objective evidence of fair value does not exist for all elements in the Company's bundled advertising campaigns, no allocation can be made among the various elements, and the Company recognizes revenue on all items ratably over the term of the arrangement.

Event Sponsorships. Sponsorship revenue from events is recognized upon completion of the event in the period the event occurs. The majority of the Company's events are free to qualified attendees, however certain events are based on a paid attendee model. The Company recognizes revenue for paid attendee events upon completion of the event and receipt of payment from the attendee. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

Print Publications. When sold separately, advertising revenues from print publications are recognized at the time the applicable publication is distributed. When print advertising campaigns are sold with other services, revenue is recognized for all services in the advertising campaign over the term of the arrangement. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

Online Media. Revenue for online media offerings is recognized for specific online media offerings as follows when these items are sold separately:

•: White Papers. White paper revenue is recognized ratably over the period in which the white paper is available on the Company's websites.
•: Webcasts, Podcasts and Videocasts. Webcast, podcast and videocast revenue is recognized ratably over the period in which the webcast, podcast or videocast is available on the Company's websites.
•: Software Package Comparisons. Software package comparison revenue is recognized ratably over the period in which the software information is available on the Company's websites.
•: Promotional E-mails and E-newsletters. Promotional e-mail revenue is recognized ratably over the period in which the related content asset is available on its websites because promotional emails do not have standalone value from the related content asset. E-newsletter revenue is recognized in the period in which the e-newsletter is sent.
•: List Rentals. List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members.
•: Banners. Banner revenue is recognized in the period in which the banner impressions occur.
•: Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed.

The Company offers customers the ability to purchase integrated ROI program offerings, which can include any of its online media offerings packaged together to address the particular customer's specific advertising requirements. As part of these offerings, the Company will guarantee a minimum

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

number of qualified sales leads to be delivered over the course of the advertising campaign. Scheduled end dates of advertising campaigns are sometimes extended to satisfy lead guarantees or fulfill all elements of the advertising campaign based on delayed receipt of advertising media collateral from the customer. The Company estimates the revenue reserve necessary to properly defer revenue recognition for extended advertising campaigns. These estimates are based on the Company's experience in managing and fulfilling these integrated ROI program offerings. Historically, shortfalls in fulfilling lead guarantees before the scheduled completion date of an advertising campaign are satisfied within an average of 44 days of such scheduled completion date. These integrated ROI program offerings represented approximately 51% and 44% of online revenues, and 40% and 33% of total revenues for the three months ended September 30, 2009 and 2008, respectively, and approximately 47% and 41% of online revenues, and 39% and 30% of total revenues for the nine months ended September 30, 2009 and 2008, respectively.

Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable, accounts payable, a term loan payable and an interest rate swap. The carrying value of these instruments approximates their estimated fair values.

Long-lived Assets

Long-lived assets consist of property and equipment, goodwill and other intangible assets. A specifically identified intangible asset must be recorded as a separate asset from goodwill if either of the following two criteria is met: (1) the intangible asset acquired arises from contractual or other legal rights; or (2) the intangible asset is separable. Accordingly, intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired not allocated to specific intangible assets.

Goodwill and indefinite-lived intangible assets are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from one to nine years, using methods of amortization that are expected to reflect the estimated pattern of economic use, and are reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable. The Company performs its annual test of impairment of goodwill on December 31st of each year, and whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. Based on this evaluation, the Company believes that, as of each of the balance sheet dates presented, none of the Company's goodwill or other long-lived assets were impaired.

Internal Use Software and Website Development Costs

The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to internal use software. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized internal use software and website development costs are reviewed for recoverability whenever events or changes in circumstances indicate

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

that the carrying amount of the asset may not be recoverable. An impairment loss shall be recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. The Company capitalized internal-use software and website development costs of $503 and $320 for the three months ended September 30, 2009 and 2008, respectively, and $844 and $342 for the nine months ended September 30, 2009 and 2008, respectively.

Income Taxes

The Company's deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. If required, a valuation allowance is established against net deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes any interest and penalties related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

At September 30, 2009, the Company had two stock-based employee compensation plans which are more fully described in Note 12. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized in the statement of operations using the straight line method over the vesting period of the award or using the accelerated method if the award is contingent upon performance goals. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.

Net Income (Loss) Per Share

Basic earnings per share is computed based on the weighted average number of common shares and vested restricted stock awards outstanding during the period. Because the holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents, the Company does not consider these awards to be participating securities that should be included in its computation of earnings per share under the two-class method. Diluted earnings per share is computed using the weighted average number of common shares and vested restricted stock awards outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense and assumed tax benefit of stock options that are in-the-money. This results in the "assumed" buyback of additional shares, thereby reducing the dilutive impact of stock options.

Recent Accounting Pronouncements

Effective January 1, 2009, the Company adopted SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)) which was primarily codified into FASB Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805). Under current guidance, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The current guidance is effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired contingencies. With the adoption of the current guidance, any tax related adjustments associated with acquisitions that closed prior to January 1, 2009 will be recorded through income tax expense, whereas the previous accounting treatment would require any adjustment to be recognized through goodwill. The adoption of the current guidance had no impact on the Company's consolidated financial statements as of, and for the three and nine months ended September 30, 2009.

Effective January 1, 2009, the Company implemented Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51 (SFAS 160) which was primarily codified into FASB ASC 810— Consolidation (ASC 810). This standard changed the accounting for and reporting of noncontrolling interest (previously called minority interest) in the consolidated financial statements. The adoption on January 1, 2009 did not have a material effect on the Company's consolidated financial position or results of operations.

Effective January 1, 2009, the Company adopted FASB Staff Position (FSP) No. 142-3, Determination of the Useful Life of Intangible Assets (FSP No. 142-3) which was primarily codified into FASB ASC 350, Intangibles—Goodwill and Other (ASC 350). The current guidance amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The current guidance also requires enhanced disclosures when an intangible asset's expected future cash flows are affected by an entity's intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company's consolidated results of operations or financial condition as of, and for the three and nine months ended September 30, 2009.

Effective April 1, 2009, the Company adopted SFAS No. 165, Subsequent Events (SFAS 165) which was primarily codified into FASB ASC 855— Subsequent Events (ASC 855). The current guidance is intended to establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The Company has evaluated subsequent events through the date of this filing.

Effective April 1, 2009, the Company adopted FSP No. 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2 and 124-2) which was primarily codified into FASB ASC 320— Investments—Debt and Equity Securities (ASC 320). The current guidance provides new guidance on the recognition and presentation of an other-than-temporary impairments, as well as extends certain annual disclosure requirements to interim periods. The adoption did not have a material impact on the Company's financial position or results of operations.

Effective September 30, 2009, the Company adopted SFAS No. 168, The FASB Accounting Standards Codification (Codification) and the Hierarchy of Generally Accepted Accounting Principles—a replacement of Financial Statement No. 162 (SFAS 168) which was primarily codified into FASB ASC 105— Generally Accepted Accounting Principles . Current guidance establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to

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TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

2. Summary of Significant Accounting Policies (Continued)

be applied by nongovernmental entities in preparation of financial statements in conformity with generally accepted accounting principles in the United States. All other accounting literature not included in the Codification is non-authoritive. The adoption did not have a material impact on the Company's consolidated results of operations or financial condition for all periods presented.

In September 2009, the FASB ratified Accounting Standards Update (ASU) 2009-13 (ASU 2009-13) (previously Emerging Issues Task Force (EITF) Issue No. 08-1, Revenue Arrangements with Multiple Deliverables (EITF 08-1)), which updates the existing multiple-element revenue arrangements guidance currently included in Accounting Standards Codification 605-25. ASU 2009-13 will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption will be permitted. The Company is currently evaluating the potential impact of the adoption of ASU 2009-13 on its consolidated results of operations and financial condition and the Company's planned date of adoption.

3. Fair Value Measurements

The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents, short-term investments, and equity investments. The fair value of these financial assets 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 as of September 30, 2009:

			Fair Value Measurements at Reporting Date Using

	September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Unaudited)
Money market funds(1)	$	11,155	$	11,155	$	—	$	—
Short-term investments		47,519		—		47,519		—
Long-term investments		9,247		—		9,247		—
Interest rate swap(2)		7		—		7		—

Total	$	67,928	$	11,155	$	56,773	$	—

(1): Included in cash equivalents on the accompanying consolidated balance sheet.
(2): Included in other liabilities on the accompanying consolidated balance sheet.

Table of Contents

TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

4. Acquisitions

On November 19, 2008, the Company acquired substantially all of the assets of The Brian Madden Company LLC (BMC), for $1,315 in cash, of which $1,184 was paid on November 19, 2008 and the remaining balance of $131 was paid on September 11, 2009. BMC operated a website ( BrianMadden.com ) and an event addressing the topics of desktop virtualization, terminal services, and application virtualization. The acquisition provides the Company with an opportunity for growth within segments and in other markets in which it currently does not have a presence, primarily desktop and application virtualization.

In connection with this acquisition, the Company purchased $79 of property and equipment, $40 of prepaid expenses, recorded $636 of goodwill and recorded $560 of intangible assets related to customer relationships, a non-compete agreement and trade names with estimated useful lives ranging from three to five years.

The estimated fair value of $560 of acquired intangible assets is assigned as follows:

	Useful Life	Estimated Fair Value

Customer relationship intangible asset	48 months	$	227
Non-compete agreement intangible asset	36 months		198
Trade name intangible asset	60 months		135

Total intangible assets		$	560

The Company engaged a third party valuation specialist to assist management in determining the fair value of the acquired assets of BMC. To value the customer relationship asset, an income approach was used, specifically a variation of the discounted cash-flow method. The projected net cash flows for BMC were tax affected using an effective rate of 41% and then discounted using a discount rate of 25% to calculate the value of the customer relationship asset. Additionally, the present value of the sum of projected tax benefits was added to arrive at the total fair value of the customer relationship asset. To value the non-compete agreement a comparative business valuation method was used. Based on a non-compete term of 36 months, management projected net cash flows for the Company with and without the non-compete agreement in place. The present value of the sum of the difference between the net cash flows with and without the non-compete agreement in place was calculated, based on a discount rate of 25%. To value the trade name intangible asset a relief from royalty method was used to estimate the pre-tax royalty savings to the Company related to the BMC trade names. The projected net cash flows from the pre-tax royalty savings were tax affected using an effective rate of 41% and then discounted using a discount rate of 25% to calculate the value of the trade name intangible asset.

5. Restructuring Charge

In December 2008 the Company implemented an expense reduction program that included (i) a reduction in workforce, (ii) a reduction in certain office leases, (iii) the elimination of its two print publications, and (iv) a continuation of strict controls on discretionary spending. The Company has implemented the cost reductions to lower its current and future operating expenses in order to align its costs with the current business conditions with the goal of maintaining its profitability and investing as appropriate to gain market share. The Company's restructuring charge was comprised principally of employee severance and associated termination costs, costs associated with a reduction in certain office

Table of Contents

TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

5. Restructuring Charge (Continued)

leases, contract termination costs in connection with the elimination of its two print publications and write-offs of leasehold improvements associated with the exit of facilities.

The Company's restructuring charge recorded in 2008 was comprised of the following;

	Restructuring Charge

Employee severance pay and related costs	$	886
Non-cancelable lease, contract termination, and other charges		559
Write-off of tenant improvements, furniture, and fixed assets		49

Restructuring charge	$	1,494

The activity in the Company's restructuring accrual for the nine months ended September 30, 2009 is as follows:

	Restructuring Charge

Balance as of December 31, 2008	$	1,114
Cash paid related to employee severance and other costs		(980	)

Balance as of September 30, 2009 (unaudited)	$	134

The Company's restructuring accrual balance of $134 and $1,114 was included in the consolidated balance sheets in accrued expenses and other liabilities as of September 30, 2009 and December 31, 2008, respectively.

6. Cash, Cash Equivalents and Investments

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

	September 30, 2009		December 31, 2008

	(Unaudited)
Cash	$	10,729	$	9,850
Money market funds		11,155		14,280

Total cash and cash equivalents	$	21,884	$	24,130

The Company's short and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders' equity, net of tax. The unrealized gain, net of taxes, was $41 and $10 as of September 30, 2009 and December 31, 2008, respectively. Realized gains and losses on the sale of these investments are determined using the specific identification method. Realized gains totaled $17 in the nine months ended September 30,

Table of Contents

TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

6. Cash, Cash Equivalents and Investments (Continued)

2009. There were no realized gains or losses in the three months ended September 30, 2009 and in the three and nine months ended September 30, 2008.

Short and long-term investments consisted of the following:

		September 30, 2009

		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
		(Unaudited)
Short and long-term investments:
	Municipal bonds	$	56,697	$	72	$	(3	)	$	56,766

Total short and long-term investments		$	56,697	$	72	$	(3	)	$	56,766

		December 31, 2008

		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Short and long-term investments:
	Municipal bonds	$	45,419	$	22	$	(3	)	$	45,438

Total short and long-term investments		$	45,419	$	22	$	(3	)	$	45,438

The Company had six debt securities in an unrealized loss position at September 30, 2009. All of these securities have been in such a position for less than 12 months. The unrealized loss on those securities was $3 and the fair value was $9,274. As of September 30, 2009, the Company does not consider these investments to be other-than temporarily impaired.

Municipal bonds have contractual maturity dates within eighteen months. All income generated from these investments is recorded as interest income.

7. Intangible Assets

Intangible assets subject to amortization as of September 30, 2009 and December 31, 2008 consist of the following:

		As of September 30, 2009

	Estimated Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net
		(Unaudited)
Customer, affiliate and advertiser relationships	1 - 9	$	11,509	$	(5,140	)	$	6,369
Developed websites, technology and patents	3 - 6		5,400		(2,175	)		3,225
Trademark, trade name and domain name	1 - 7		2,179		(1,184	)		995
Proprietary user information database and Internet traffic	3 - 5		4,750		(1,997	)		2,753
Non-compete agreements	1 - 3		1,323		(985	)		338

Total intangible assets		$	25,161	$	(11,481	)	$	13,680

Table of Contents

TECHTARGET, INC.

Notes to Consolidated Financial Statements (Continued)

(In thousands, except share and per share data)

7. Intangible Assets (Continued)

Intangible assets are amortized over their estimated useful lives, which range from one to nine years, using methods of amortization that are expected to reflect the estimated pattern of economic use. The remaining amortization expense will be recognized over a weighted-average period of approximately 2.6 years. Amortization expense was $1,166 and $1,259 for the three months ended September 30, 2009 and 2008 respectively, and $3,562 and $4,071 for the nine months ended September 30, 2009 and 2008, respectively.

Years Ending December 31:	Amortization Expense

2009 (October 1st - December 31st)	$	1,152
2010		4,202
2011		3,222
2012		2,462
2013		1,010
Thereafter		1,632

	$	13,680

Years Ending December 31:	Minimum Lease Payments

	(Unaudited)
2009 (October 1st - December 31st)	$	702
2010		902
2011		2,863
2012		3,423
2013		2,863
Thereafter		18,014

	$	28,767

	Three Months Ended September 30,		Nine Months Ended September 30,

	2009	2008	2009	2008
	(Unaudited)
Expected volatility	79%	41%	75% - 79%	41% - 46%
Expected term	6.25 years	6.25 years	6.25 years	6.25 years
Risk-free interest rate	2.89%	3.07%	2.21% - 2.89%	3.07% - 3.15%
Expected dividend yield	—%	—%	—%	—%
Weighted-average grant date fair value per share	$4.49	$3.43	$2.23	$4.68

Quarter-to-Date Activity	Options Outstanding			Weighted- Average Exercise Price Per Share			Aggregate Intrinsic Value

	(Unaudited)
Options outstanding at June 30, 2009		7,628,085		$	6.25
Granted		10,000			6.36
Exercised		(294,015	)		0.39
Forfeited		(26,942	)		9.69
Cancelled		(4,311	)		9.08

Options outstanding at September 30, 2009		7,312,817		$	6.47	6.4	$	6,493

Options exercisable at September 30, 2009		4,955,193		$	6.10	5.5	$	5,610

Options vested or expected to vest at September 30, 2009(1)		7,208,622		$	6.47	6.4	$	6,436

Year-to-Date Activity	Options Outstanding			Weighted- Average Exercise Price Per Share

	(Unaudited)
Options outstanding at December 31, 2008		7,765,578		$	6.30
Granted		45,000			3.23
Exercised		(301,640	)		0.42
Forfeited		(66,478	)		9.24
Cancelled		(129,643	)		7.43

Options outstanding at September 30, 2009		7,312,817		$	6.47

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Quarter-to-Date Activity	Shares		Weighted- Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value

	(Unaudited)
Nonvested outstanding at June 30, 2009		2,389,476	$	6.04
Granted		—		—
Vested		—		—
Forfeited		—		—

Nonvested outstanding at September 30, 2009		2,389,476	$	6.04	$	9,558

Year-to-Date Activity	Shares			Weighted- Average Grant Date Fair Value Per Share

	(Unaudited)
Nonvested outstanding at December 31, 2008		464,476		$	14.48
Granted		1,931,250			4.00
Vested		(6,250	)		4.00
Forfeited		—			—

Nonvested outstanding at September 30, 2009		2,389,476		$	6.04

	Number of Shares

	(Unaudited)
Options outstanding and available for grant under stock option plans		10,658,897
Warrants		1,269

Total common stock reserved		10,660,166

		Three Months Ended September 30,

		2009		2008		Increase (Decrease)			Percent Change
		(Unaudited)
		($ in thousands)
Revenues:
	Online	$	18,191	$	20,420	$	(2,229	)		(11	)%
	Events		4,865		5,496		(631	)		(11	)
	Print		—		1,080		(1,080	)		(100	)

Total revenues		$	23,056	$	26,996	$	(3,940	)		(15	)%

	September 30, 2009		December 31, 2008

	(Unaudited)
	($ in thousands)
Cash, cash equivalents and investments	$	78,650	$	69,568

Accounts receivable, net	$	15,623	$	17,622

	Payments Due By Period

	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(Unaudited)
	($ in thousands)
Bank term loan payable	$	750	$	750	$	—	$	—	$	—
Operating leases(1)		28,767		1,456		8,594		8,744		9,973

Total	$	29,517	$	2,206	$	8,594	$	8,744	$	9,973


	10.1		First Amendment (dated August 30, 2007) to Credit Facility Agreement dated August 30, 2006 between the Registrant and Citizens Bank of Massachusetts.
	10.2		Second Amendment (dated December 18, 2008) to Credit Facility Agreement between the Registrant and Citizens Bank of Massachusetts, dated August 30, 2006.
	10.3		Third Amendment (dated December 17, 2009) to Credit Facility Agreement dated August 30, 2006 between the Registrant and Citizens Bank of Massachusetts.
	10.4		First Amendment (dated December 17, 2009) to Revolving Promissory Note dated August 30, 2006 between the Registrant and Citizens Bank of Massachusetts.
	10.5		Waiver of Specified Covenants (dated December 17, 2009) for Credit Facility Agreement dated August 30, 2006 between the Registrant and Citizens Bank of Massachusetts, now known as RBS Citizens, National Association.
	10.6		Waiver of Specified Covenants (dated January 28, 2010) for Credit Facility Agreement dated August 30, 2006 between the Registrant and Citizens Bank of Massachusetts, now known as RBS Citizens, National Association.
	31.1		Certification of Greg Strakosch, Chief Executive Officer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, dated February 8, 2010.
	31.2		Certification of Eric Sockol, Chief Financial Officer and Treasurer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, dated February 8, 2010.
	32.1		Certifications of Greg Strakosch, Chief Executive Officer of TechTarget, Inc. and Eric Sockol, Chief Financial Officer and Treasurer of TechTarget, Inc. pursuant to 18 U.S.C. Section 1350, dated February 8, 2010.


	TECHTARGET, INC (Registrant)
Date: February 8, 2010	By:	/s/ GREG STRAKOSCH Greg Strakosch, Chief Executive Officer (Principal Executive Officer)
Date: February 8, 2010	By:	/s/ ERIC SOCKOL Eric Sockol, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)