PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
50,390
|
|
|
$
|
52,487
|
|
Short-term investments
|
|
|
5,023
|
|
|
|
5,012
|
|
Accounts receivable, net of allowance for doubtful accounts of $2,028 and $1,899 respectively
|
|
|
25,568
|
|
|
|
27,102
|
|
Prepaid taxes
|
|
|
—
|
|
|
|
1,017
|
|
Prepaid expenses and other current assets
|
|
|
1,830
|
|
|
|
1,813
|
|
Total current assets
|
|
|
82,811
|
|
|
|
87,431
|
|
Property and equipment, net
|
|
|
12,951
|
|
|
|
12,371
|
|
Goodwill
|
|
|
97,023
|
|
|
|
93,639
|
|
Intangible assets, net
|
|
|
3,471
|
|
|
|
710
|
|
Operating lease assets with right-of-use
|
|
|
25,485
|
|
|
|
26,385
|
|
Deferred tax assets
|
|
|
616
|
|
|
|
136
|
|
Other assets
|
|
|
903
|
|
|
|
936
|
|
Total assets
|
|
$
|
223,260
|
|
|
$
|
221,608
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,847
|
|
|
$
|
2,036
|
|
Current operating lease liability
|
|
|
2,769
|
|
|
|
2,571
|
|
Current portion of term loan
|
|
|
1,554
|
|
|
|
1,241
|
|
Accrued expenses and other current liabilities
|
|
|
3,737
|
|
|
|
2,476
|
|
Accrued compensation expenses
|
|
|
1,164
|
|
|
|
3,679
|
|
Income taxes payable
|
|
|
3,217
|
|
|
|
65
|
|
Contract liabilities
|
|
|
5,051
|
|
|
|
4,335
|
|
Total current liabilities
|
|
|
19,339
|
|
|
|
16,403
|
|
Long-term portion of term loan
|
|
|
21,540
|
|
|
|
22,473
|
|
Non-current operating lease liability
|
|
|
26,845
|
|
|
|
28,170
|
|
Deferred tax liabilities
|
|
|
850
|
|
|
|
1,611
|
|
Other liabilities
|
|
|
1,140
|
|
|
|
—
|
|
Total liabilities
|
|
|
69,714
|
|
|
|
68,657
|
|
Leases and contingencies (see Note 9)
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 55,035,081 and 54,903,824 shares issued, respectively; 27,536,786 and 28,142,519 shares outstanding, respectively
|
|
|
55
|
|
|
|
55
|
|
Treasury stock, at cost; 27,498,295 and 26,761,305 shares, respectively
|
|
|
(199,796
|
)
|
|
|
(184,972
|
)
|
Additional paid-in capital
|
|
|
326,194
|
|
|
|
317,675
|
|
Accumulated other comprehensive loss
|
|
|
(399
|
)
|
|
|
(319
|
)
|
Retained earnings
|
|
|
27,492
|
|
|
|
20,512
|
|
Total stockholders’ equity
|
|
|
153,546
|
|
|
|
152,951
|
|
Total liabilities and stockholders’ equity
|
|
$
|
223,260
|
|
|
$
|
221,608
|
|
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 Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
34,796
|
|
|
$
|
34,286
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
Cost of revenues(1)
|
|
|
8,785
|
|
|
|
7,952
|
|
|
16,936
|
|
|
|
14,964
|
|
Gross profit
|
|
|
26,011
|
|
|
|
26,334
|
|
|
49,276
|
|
|
|
49,294
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing(1)
|
|
|
12,570
|
|
|
|
13,976
|
|
|
25,519
|
|
|
|
26,422
|
|
Product development(1)
|
|
|
1,846
|
|
|
|
2,001
|
|
|
3,878
|
|
|
|
3,988
|
|
General and administrative(1)
|
|
|
3,267
|
|
|
|
3,123
|
|
|
6,622
|
|
|
|
6,145
|
|
Depreciation and amortization, excluding depreciation of $221, $56, $392, and $69, respectively, included in cost of revenues
|
|
|
1,453
|
|
|
|
1,146
|
|
|
2,798
|
|
|
|
2,276
|
|
Total operating expenses
|
|
|
19,136
|
|
|
|
20,246
|
|
|
38,817
|
|
|
|
38,831
|
|
Operating income
|
|
|
6,875
|
|
|
|
6,088
|
|
|
10,459
|
|
|
|
10,463
|
|
Interest and other expense, net
|
|
|
(10
|
)
|
|
|
(253
|
)
|
|
(479
|
)
|
|
|
(390
|
)
|
Income before provision for income taxes
|
|
|
6,865
|
|
|
|
5,835
|
|
|
9,980
|
|
|
|
10,073
|
|
Provision for income taxes
|
|
|
2,092
|
|
|
|
1,684
|
|
|
3,000
|
|
|
|
2,632
|
|
Net income
|
|
$
|
4,773
|
|
|
$
|
4,151
|
|
$
|
6,980
|
|
|
$
|
7,441
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments (net of tax provision of $(24), $0, $13, and $0, respectively)
|
|
$
|
84
|
|
|
$
|
—
|
|
$
|
(48
|
)
|
|
$
|
—
|
|
Foreign currency translation gain (loss)
|
|
|
21
|
|
|
|
(58
|
)
|
|
(32
|
)
|
|
|
(17
|
)
|
Other comprehensive income (loss)
|
|
|
105
|
|
|
|
(58
|
)
|
|
(80
|
)
|
|
|
(17
|
)
|
Comprehensive income
|
|
$
|
4,878
|
|
|
$
|
4,093
|
|
$
|
6,900
|
|
|
$
|
7,424
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
$
|
0.25
|
|
|
$
|
0.26
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,533
|
|
|
|
27,640
|
|
|
27,768
|
|
|
|
27,723
|
|
Diluted
|
|
|
28,163
|
|
|
|
28,232
|
|
|
28,304
|
|
|
|
28,226
|
|
(1)
|
Amounts include stock-based compensation expense as follows:
|
Cost of revenues
|
|
$
|
71
|
|
|
$
|
41
|
|
$
|
140
|
|
|
$
|
80
|
|
Selling and marketing
|
|
|
2,118
|
|
|
|
2,964
|
|
|
4,307
|
|
|
|
4,655
|
|
Product development
|
|
|
125
|
|
|
|
93
|
|
|
321
|
|
|
|
186
|
|
General and administrative
|
|
|
979
|
|
|
|
664
|
|
|
1,953
|
|
|
|
1,303
|
|
See accompanying Notes to Consolidated Financial Statements.
4
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
For the three and six months ended June 30, 2020
(in thousands, except share and per share data)
(Unaudited)
|
|
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, 2019
|
|
|
54,903,824
|
|
|
$
|
55
|
|
|
|
26,761,305
|
|
|
$
|
(184,972
|
)
|
|
$
|
317,675
|
|
|
$
|
(319
|
)
|
|
$
|
20,512
|
|
|
$
|
152,951
|
|
Issuance of common stock from restricted stock awards
|
|
|
123,027
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Purchase of common stock through stock buyback
|
|
|
—
|
|
|
|
—
|
|
|
|
736,760
|
|
|
|
(14,824
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,824
|
)
|
Impact of net settlements
|
|
|
230
|
|
|
|
—
|
|
|
|
230
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(68
|
)
|
Stock-based compensation expense(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,294
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,294
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(132
|
)
|
|
|
—
|
|
|
|
(132
|
)
|
Unrealized loss on foreign currency exchange
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
—
|
|
|
|
(53
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,207
|
|
|
|
2,207
|
|
Balance, March 31, 2020
|
|
|
55,027,081
|
|
|
$
|
55
|
|
|
|
27,498,295
|
|
|
$
|
(199,796
|
)
|
|
$
|
322,901
|
|
|
$
|
(504
|
)
|
|
$
|
22,719
|
|
|
$
|
145,375
|
|
Issuance of common stock from restricted stock awards
|
|
|
8,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,293
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84
|
|
|
|
—
|
|
|
|
84
|
|
Unrealized gain on foreign currency exchange
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,773
|
|
|
|
4,773
|
|
Balance, June 30, 2020
|
|
|
55,035,081
|
|
|
$
|
55
|
|
|
|
27,498,295
|
|
|
$
|
(199,796
|
)
|
|
$
|
326,194
|
|
|
$
|
(399
|
)
|
|
$
|
27,492
|
|
|
$
|
153,546
|
|
|
(1)
|
Includes $1.8 million of accrued compensation expense from 2019.
|
See accompanying Notes to Consolidated Financial Statements.
5
TechTarget, Inc.
Consolidated Statements of Stockholders’ Equity
For the three and six months ended June 30, 2019
(in thousands, except share and per share data)
(Unaudited)
|
|
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
|
|
Balance, March 31, 2019
|
|
|
54,246,261
|
|
|
$
|
54
|
|
|
|
26,552,968
|
|
|
$
|
(181,030
|
)
|
|
$
|
309,348
|
|
|
$
|
(174
|
)
|
|
$
|
6,927
|
|
|
$
|
135,125
|
|
Issuance of common stock from exercise of options
|
|
|
56,207
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock from restricted stock awards
|
|
|
—
|
|
|
|
—
|
|
|
|
97,427
|
|
|
|
(1,600
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,600
|
)
|
Purchase of common stock through stock buyback
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,762
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,762
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on foreign currency exchange
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
—
|
|
|
|
(58
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,151
|
|
|
|
4,151
|
|
Balance, June 30, 2019
|
|
|
54,302,468
|
|
|
$
|
54
|
|
|
|
26,650,395
|
|
|
$
|
(182,630
|
)
|
|
$
|
313,110
|
|
|
$
|
(232
|
)
|
|
$
|
11,078
|
|
|
$
|
141,380
|
|
See accompanying Notes to Consolidated Financial Statements.
6
TechTarget, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,980
|
|
|
$
|
7,441
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,190
|
|
|
|
2,345
|
|
Provision for bad debt
|
|
|
317
|
|
|
|
367
|
|
Stock-based compensation
|
|
|
6,721
|
|
|
|
6,224
|
|
Amortization of debt issuance costs
|
|
|
4
|
|
|
|
4
|
|
Deferred tax provision
|
|
|
(1,236
|
)
|
|
|
(80
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,217
|
|
|
|
2,600
|
|
Prepaid expenses and other current assets
|
|
|
(17
|
)
|
|
|
(112
|
)
|
Other assets
|
|
|
15
|
|
|
|
(94
|
)
|
Accounts payable
|
|
|
(187
|
)
|
|
|
(843
|
)
|
Income taxes payable
|
|
|
4,162
|
|
|
|
1,153
|
|
Accrued expenses and other current liabilities
|
|
|
(346
|
)
|
|
|
(175
|
)
|
Operating lease right-of-use assets and liabilities, net
|
|
|
(182
|
)
|
|
|
(161
|
)
|
Accrued compensation expenses
|
|
|
(637
|
)
|
|
|
(763
|
)
|
Contract liabilities
|
|
|
700
|
|
|
|
913
|
|
Other liabilities
|
|
|
1,140
|
|
|
|
—
|
|
Net cash provided by operating activities
|
|
|
21,841
|
|
|
|
18,819
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, and other capitalized assets
|
|
|
(3,338
|
)
|
|
|
(3,379
|
)
|
Purchases of investments and maturities of investments
|
|
|
(71
|
)
|
|
|
500
|
|
Acquisitions of businesses, net
|
|
|
(5,015
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(8,424
|
)
|
|
|
(2,879
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Tax withholdings related to net share settlements
|
|
|
(68
|
)
|
|
|
(868
|
)
|
Purchase of treasury shares and related costs
|
|
|
(14,824
|
)
|
|
|
(4,725
|
)
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
23
|
|
Term loan principal payment
|
|
|
(625
|
)
|
|
|
(625
|
)
|
Net cash used in financing activities
|
|
|
(15,517
|
)
|
|
|
(6,195
|
)
|
Effect of exchange rate changes on cash
|
|
|
3
|
|
|
|
(13
|
)
|
Net (decrease) increase in cash
|
|
|
(2,097
|
)
|
|
|
9,732
|
|
Cash at beginning of period
|
|
|
52,487
|
|
|
|
34,673
|
|
Cash at end of period
|
|
$
|
50,390
|
|
|
$
|
44,405
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes, net
|
|
$
|
92
|
|
|
$
|
1,407
|
|
See accompanying Notes to Consolidated Financial Statements.
7
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 technology products and services, and a leading provider of purchase-intent marketing and sales services for business-to-business “B2B” technology companies. The Company’s service offerings enable enterprise B2B technology companies to better identify, reach, and influence corporate enterprise technology decision makers actively researching specific enterprise technology purchases. The Company improves B2B technology companies’ 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 major enterprise technology sector such as storage, security, or networking. Enterprise technology 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 enterprise technology and business professionals to navigate the complex and rapidly changing enterprise technology 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 enterprise technology 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, 2019, and in this note to the consolidated financial statements.
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. 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.
.
8
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, 2019.
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.
Accounts Receivable
We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the Consolidated Statements of Income and Comprehensive Income. We assess collectability by reviewing accounts receivable on an individual basis when we identify specific customers with known disputes, overdue amounts or collectability issues and also reserve for losses on all accounts based on historical information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status and make judgments about the creditworthiness of customers based on ongoing credit evaluations.
At June 30, 2020, the Company’s assessment considered business and market disruptions caused by COVID-19 and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods.
Other Liabilities
Other liabilities consist of the long-term portions of amounts payable related to our acquisition of substantially all of the assets of Data Science Central LLC (see Notes 4 and 14) and the amounts deferred under the Coronavirus, Aid, Relief and Economic
9
Security Act (CARES Act) which allows employers to defer the payment of the Company’s employer share of FICA payroll taxes. The amount of the employer share of FICA payroll taxes (6.2% of the first $137,700 of employee pay) due for the period beginning on March 27, 2020, and ending December 31, 2020, can be deferred. The deferred amounts will then be payable in equal installments at December 31, 2021 and December 31, 2022.
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, 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.
The Company 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 and Comprehensive Income on a straight-line basis over the lease term. The Company recorded operating lease assets with right-of-use of $27.5 million and $2.9 million current operating lease liability and $29.2 million 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 rent, respectively (see Note 9).
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 adopted the new standard effective January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.
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 optional 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 adopted the new standard effective January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” (ASU 2016-13) which amends ASC 326 “Financial Instruments—Credit Losses” which introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new forward -looking "expected loss model" that requires entities to estimate current expected credit losses on accounts receivable and financial instruments by using all practical and relevant information. The Company adopted the new standard effective January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.
10
In August 2018, the FASB issued Accounting Standard Update No. 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements” (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The Company adopted the new standard effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Accounting Guidance Not Yet Adopted
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes” (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.
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 and economic risk. International revenue consists of international geo-targeted campaigns, which are campaigns targeted at an audience of members outside of North America.
|
For the Three Months Ended
June 30,
|
|
For the Six Months Ended
June 30,
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
North America
|
$
|
21,106
|
|
|
$
|
23,353
|
|
$
|
40,855
|
|
|
$
|
43,631
|
|
International
|
|
13,690
|
|
|
|
10,933
|
|
|
25,357
|
|
|
|
20,627
|
|
Total
|
$
|
34,796
|
|
|
$
|
34,286
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
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 $2.6 million and $2.4 million at June 30, 2020, and December 31, 2019, respectively.
|
|
Contract Liabilities
|
|
Year-to-Date Activity
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
4,335
|
|
Deferral of revenue
|
|
|
2,178
|
|
Recognition of previously unearned revenue
|
|
|
(1,965
|
)
|
Balance at March 31, 2020
|
|
$
|
4,548
|
|
Deferral of revenue
|
|
|
1,822
|
|
Recognition of previously unearned revenue
|
|
|
(1,319
|
)
|
Balance at June 30, 2020
|
|
$
|
5,051
|
|
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 a
|
11
|
|
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 that 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.
|
|
•
|
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 short-term and long-term investments and contingent consideration. The Company’s bank and 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
June 30, 2020
|
|
|
|
June 30, 2020
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments(1)
|
|
$
|
5,023
|
|
|
$
|
—
|
|
|
$
|
5,023
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
5,023
|
|
|
$
|
—
|
|
|
$
|
5,023
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - current (2)
|
|
$
|
711
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
711
|
|
Contingent consideration - non-current (2)
|
|
|
426
|
|
|
|
—
|
|
|
|
—
|
|
|
|
426
|
|
Total liabilities
|
|
$
|
1,137
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2019
|
|
|
|
December 31, 2019
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments(1)
|
|
$
|
5,012
|
|
|
$
|
—
|
|
|
$
|
5,012
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
5,012
|
|
|
$
|
—
|
|
|
$
|
5,012
|
|
|
$
|
—
|
|
(1)
|
Short-term investments consist of a bond fund, their fair value is calculated using an interest rate yield curve for similar instruments.
|
(2)
|
The Company’s valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with the acquisition are described in Note 14.
|
12
5. Cash and Investments
Cash is carried at cost, which approximates fair market value. Cash consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Cash
|
|
$
|
50,390
|
|
|
$
|
52,487
|
|
Total cash
|
|
$
|
50,390
|
|
|
$
|
52,487
|
|
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. Realized gains and losses on the sale of these investments are determined using the specific identification method. The cumulative unrealized loss, net of taxes, was $47 thousand as of June 30, 2020. There were no realized gains or losses as of December 31, 2019.
Short-term investments consisted of the following:
|
|
June 30, 2020
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond funds
|
|
$
|
5,084
|
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
|
$
|
5,023
|
|
Total short-term investments
|
|
$
|
5,084
|
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
|
$
|
5,023
|
|
|
|
December 31, 2019
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond funds
|
|
$
|
5,012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,012
|
|
Total short-term investments
|
|
$
|
5,012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,012
|
|
6. Goodwill and Intangible Assets
The following table summarizes the Company’s intangible assets, net:
|
|
|
|
|
|
June 30, 2020
|
|
|
|
Estimated
Useful Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer, affiliate and advertiser relationships
|
|
5-17
|
|
|
$
|
8,684
|
|
|
$
|
6,326
|
|
|
$
|
2,358
|
|
Developed websites, technology and patents
|
|
|
10
|
|
|
|
2,005
|
|
|
|
1,079
|
|
|
|
926
|
|
Trademark, trade name and domain name
|
|
5-8
|
|
|
|
1,798
|
|
|
|
1,753
|
|
|
|
45
|
|
Proprietary user information database and internet traffic
|
|
|
5
|
|
|
|
1,094
|
|
|
|
1,094
|
|
|
|
—
|
|
Non-Compete agreement
|
|
|
3
|
|
|
|
170
|
|
|
|
28
|
|
|
|
142
|
|
Total intangible assets
|
|
|
|
|
|
$
|
13,751
|
|
|
$
|
10,280
|
|
|
$
|
3,471
|
|
13
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Estimated
Useful Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer, affiliate and advertiser relationships
|
|
5-17
|
|
|
$
|
6,520
|
|
|
$
|
(6,290
|
)
|
|
$
|
230
|
|
Developed websites, technology and patents
|
|
|
10
|
|
|
|
1,476
|
|
|
|
(1,026
|
)
|
|
|
450
|
|
Trademark, trade name and domain name
|
|
5-8
|
|
|
|
1,792
|
|
|
|
(1,763
|
)
|
|
|
29
|
|
Proprietary user information database and internet traffic
|
|
|
5
|
|
|
|
1,122
|
|
|
|
(1,122
|
)
|
|
|
—
|
|
Non-Compete agreement
|
|
|
1.5
|
|
|
|
10
|
|
|
|
(9
|
)
|
|
|
1
|
|
Total intangible assets
|
|
|
|
|
|
$
|
10,920
|
|
|
$
|
(10,210
|
)
|
|
$
|
710
|
|
Intangible assets are amortized over their estimated useful lives, which range from approximately 3 to 17 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 5.01 years. Amortization expense was $0.1 million for each of the six months ended June 30, 2020 and 2019. Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets which generate website traffic that the Company considers to be in support of selling and marketing activities. The Company did not write off any fully amortized intangible assets in the first six months of 2020.
The Company expects amortization expense of intangible assets to be as follows:
Years Ending December 31:
|
|
Amortization
Expense
|
|
2020 (July 1 – December 31)
|
|
$
|
223
|
|
2021
|
|
|
463
|
|
2022
|
|
|
492
|
|
2023
|
|
|
329
|
|
2024
|
|
|
319
|
|
Thereafter
|
|
|
1,645
|
|
Total
|
|
$
|
3,471
|
|
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. The Company did not have any intangible assets other than goodwill with indefinite lives as of June 30, 2020 or December 31, 2019. There were no indications of impairment as of June 30, 2020, and the Company believes that, as of the balance sheet dates presented, none of the Company’s goodwill or intangible assets was impaired
14
7. Net Income Per Common Share
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per common share is as follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,773
|
|
|
$
|
4,151
|
|
|
$
|
6,980
|
|
|
$
|
7,441
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock and vested, undelivered restricted stock units outstanding
|
|
|
27,532,786
|
|
|
|
27,640,207
|
|
|
|
27,768,224
|
|
|
|
27,722,521
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock and vested, undelivered restricted stock units outstanding
|
|
|
27,532,786
|
|
|
|
27,640,207
|
|
|
|
27,768,224
|
|
|
|
27,722,521
|
|
Effect of potentially dilutive shares (1)
|
|
|
630,127
|
|
|
|
591,538
|
|
|
|
535,844
|
|
|
|
503,469
|
|
Total weighted average shares of common stock and vested, undelivered restricted stock units outstanding and potentially dilutive shares
|
|
|
28,162,913
|
|
|
|
28,231,745
|
|
|
|
28,304,068
|
|
|
|
28,225,990
|
|
Net Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
Diluted net income per share
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
0.25
|
|
|
$
|
0.26
|
|
(1)
|
In calculating diluted net income per share, 29 thousand shares and 26 thousand shares related to outstanding stock options and unvested, undelivered restricted stock units were excluded for the three and six months ended June 30, 2020, respectively, and 0.6 million and 0.5 million shares related to outstanding stock options and unvested, undelivered restricted stock units were excluded for the three and six months ended June 30, 2019, respectively.
|
8. Term Loan Agreement and Subsequent Event
On December 24, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank (the “Bank”) as the lender. The Loan Agreement provides for a $25 million term loan facility with a maturity date of December 10, 2023 (the “Term Loan”).
The Term Loan is secured by a lien on substantially all of the assets of the Company, including a pledge of the stock of certain of its wholly-owned subsidiaries (limited, in the case of the stock of certain foreign subsidiaries of the Company, to no more than 65% of the capital stock of such subsidiaries).
The Term Loan must be repaid quarterly, with applicable interest paid monthly, in the following manner: 1.25% of the initial aggregate borrowings are due and payable each quarter for the first two loan years, 1.88% of the initial aggregate borrowings are due and payable each quarter for the third loan year, and 2.50% of the initial aggregate borrowings are due and payable each quarter for the fourth and fifth loan years. At maturity, all outstanding amounts, including unpaid principal and accrued and unpaid interest, under the Loan Agreement will be due and payable.
The Term Loan bears interest at a floating per annum rate equal to one and three-eighths percent (1.375%) above the greater of (a) the one-month U.S. LIBOR rate reported in The Wall Street Journal or (b) two percent (2.00%).
On July 2, 2020, the Company entered into a Loan and Security Modification Agreement (“Modification Agreement”) with the Bank pursuant to which the Company and the Bank agreed to amend the Loan Agreement. The Modification Agreement, among other things, added or amended certain definitions in the Loan Agreement, added a financial covenant requiring the Company to maintain an Asset Coverage Ratio (as defined in the Loan Agreement) of no less than 1.0 to 1.0 tested as of the end of each quarter, and provided
15
the Company with a new revolving line of credit facility of $20,000,000 (“Line of Credit”). The Line of Credit allows the Company to request non-formula advances in an aggregate principal amount not to exceed the Line of Credit and to use the proceeds of such advances until the facility matures on July 2, 2022. Advances under the Line of Credit bear interest at a floating rate equal to one-quarter percent (0.25%) above the Prime Rate (as published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Western Alliance as its Prime Rate); provided that at no time shall the interest rate on such advances be less than three and one half percent (3.50%). The Modification Agreement also establishes a process by which the Company and the Bank will determine an alternative interest rate for the Company’s existing Term Loan under the Loan Agreement in the event that the Bank determines that LIBOR ceases to exist or is no longer available. In addition, the Company will be required to pay customary fees and expenses, including an annual facility fee with respect to the Line of Credit. Together, the Loan Agreement and Line of Credit are guaranteed by the Company and secured by substantially all assets of the Company and its subsidiaries.
9. Leases and Contingencies
On January 1, 2019, the Company adopted Topic 842 Leases using the modified retrospective approach. The Company recorded operating lease assets (right-of-use assets) of $27.5 million and operating lease liabilities of $32.1 million. There was no impact to retained earnings upon adoption of Topic 842.
The Company has various non-cancelable lease agreements for certain of its offices with original lease periods expiring between 2019 and 2029. Lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. Leases with a renewal option allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such option. Renewal and termination options were generally not included in the lease term for the Company's existing operating leases. Certain of the arrangements have discounted rent periods or escalating rent payment provisions. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes rent expense on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantee or material restrictive covenants.
As of June 30, 2020, operating lease assets were $25.5 million and operating lease liabilities were $29.6 million. The maturity of the Company’s operating lease liabilities as of June 30, 2020 are as follows:
|
|
Minimum Lease
|
|
Years Ending December 31:
|
|
Payments
|
|
2020 (June 30 – December 31)
|
|
$
|
2,063
|
|
2021
|
|
|
4,132
|
|
2022
|
|
|
3,778
|
|
2023
|
|
|
3,696
|
|
2024
|
|
|
3,725
|
|
Thereafter
|
|
|
17,760
|
|
Total future minimum lease payments
|
|
$
|
35,154
|
|
Less imputed interest
|
|
|
5,540
|
|
Total operating lease liabilities
|
|
$
|
29,614
|
|
Included in the Consolidated Balance Sheet:
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
2,769
|
|
Non-current operating lease liabilities
|
|
|
26,845
|
|
Total operating lease liabilities
|
|
$
|
29,614
|
|
16
For the three and six months ended June 30, 2020 and 2019, the total lease cost is comprised of the following amounts:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
June 30, 2019
|
|
Operating lease expense
|
|
$
|
946
|
|
$
|
975
|
|
|
$
|
1,893
|
|
$
|
1,950
|
|
Short-term lease expense
|
|
|
26
|
|
|
21
|
|
|
|
54
|
|
|
42
|
|
Total lease expense
|
|
$
|
972
|
|
$
|
996
|
|
|
$
|
1,947
|
|
$
|
1,992
|
|
The following summarizes additional information related to operating leases:
|
|
As of
|
|
|
|
June 30, 2020
|
|
Weighted-average remaining lease term — operating leases
|
|
|
5.1
|
|
Weighted-average discount rate — operating leases
|
|
|
4
|
%
|
If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgment when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.
Litigation
From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At June 30, 2020 and December 31, 2019, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
10. Stock-Based Compensation
Stock Option and Incentive Plans
In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”), which was approved by the stockholders of the Company and became effective upon the consummation of the Company’s IPO in May 2007. The 2007 Plan allowed the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock units and other awards. Under the 2007 Plan, stock options could not be granted at less than fair market value on the date of grant, and grants generally vested over a three- to four-year period. Stock options granted under the 2007 Plan expire no later than ten years after the grant date. Additionally, beginning with awards made in August 2015, the Company had the option to direct a net issuance of shares for satisfaction of tax liability with respect to vesting of awards and delivery of shares. Prior to August 2015, this choice of settlement method was solely at the discretion of the award recipient. The 2007 Plan expired in May 2017.
No new awards may be granted under the 2007 Plan; however, the shares of common stock remaining in the 2007 Plan are available for issuance in connection with previously awarded grants under the 2007 Plan. There are 77,500 shares of common stock that remain subject to outstanding stock grants under the 2007 Plan as of June 30, 2020.
17
In March 2017, the Board approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”), which was approved by the stockholders of the Company at the 2017 Annual Meeting and became effective June 16, 2017. The 2017 Plan replaces the Company’s 2007 Plan. On that date, 3,000,000 shares of Common Stock were reserved for issuance under the 2017 Plan and, generally, shares that are forfeited or canceled from awards under the 2017 Plan also will be available for future awards. Under the 2017 Plan, the Company may grant restricted stock and restricted stock units, non-qualified stock options, stock appreciation rights, performance awards, and other stock-based and cash-based awards. Grants generally vest in equal tranches over a three-year period. Stock options granted under the 2017 Plan expire no later than ten years after the grant date. Shares of stock issued pursuant to restricted stock awards are restricted in that they are not transferable until they vest. Stock underlying awards of restricted stock units are not issued until the units vest. Non-qualified stock options cannot be exercised until they vest. Under the 2017 Plan, all stock options and stock appreciation rights must be granted with an exercise price that is at least equal to the fair market value of the stock on the date of grant. The 2017 Plan broadly prohibits the repricing of options and stock appreciation rights without stockholder approval and requires that no dividends or dividend equivalents be paid with respect to options or stock appreciation rights. The 2017 Plan further provides that, in the event any dividends or dividend equivalents are declared with respect to restricted stock, restricted stock units, other stock-based awards and performance awards (referred to as “full-value awards”), they would be subject to the same vesting and forfeiture provisions as the underlying award. There is a total of 1,368,630 shares of common stock that remain subject to outstanding stock grants under the 2017 Plan as of June 30, 2020.
Accounting for Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of an award.
The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period equal to the expected life of the option. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a zero coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture rate based on historical averages in determining the expense recorded in each period.
A summary of the stock option activity under the Company’s plans for the six months ended June 30, 2020 is presented below:
Year-to-Date Activity
|
|
Options
Outstanding
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term in
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at December 31, 2019
|
|
|
140,000
|
|
|
$
|
13.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
25,000
|
|
|
$
|
29.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2020
|
|
|
165,000
|
|
|
$
|
15.64
|
|
|
|
6.11
|
|
|
$
|
2,375
|
|
Options exercisable at June 30, 2020
|
|
|
137,500
|
|
|
$
|
12.96
|
|
|
|
5.36
|
|
|
$
|
2,347
|
|
Options vested or expected to vest at June 30, 2020
|
|
|
162,880
|
|
|
$
|
15.46
|
|
|
|
6.06
|
|
|
$
|
2,374
|
|
There were no options exercised during the six months ended June 30, 2020. The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $20 thousand during the six months ended June 30, 2019. The total amount of cash received from exercise of these options was approximately $23 thousand during the six months ended, June 30, 2019.
18
Restricted Stock Units
Restricted stock units are valued at the market price of a share of the Company’s common stock on the date of the grant. A summary of the restricted stock unit activity under the Company’s plans for the six months ended June 30, 2020 is presented below:
Year-to-Date Activity
|
|
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Nonvested outstanding at December 31, 2019
|
|
|
1,301,130
|
|
|
$
|
21.82
|
|
|
|
|
|
Granted
|
|
|
95,688
|
|
|
$
|
21.10
|
|
|
|
|
|
Vested
|
|
|
(103,688
|
)
|
|
$
|
21.12
|
|
|
|
|
|
Forfeited
|
|
|
(12,000
|
)
|
|
$
|
25.21
|
|
|
|
|
|
Nonvested outstanding at June 30, 2020
|
|
|
1,281,130
|
|
|
$
|
21.79
|
|
|
$
|
38,472
|
|
There were 103,688 restricted stock units with a total grant-date fair value of $2.2 million that vested during the six months ended June 30, 2020. There were 12,000 shares forfeited with a total value of $303 thousand for the six months ended June 30, 2020. There were 98,811 restricted stock units with a total grant-date fair value of $1.9 million that vested during the six months ended June 30, 2019.
As of, June 30, 2020 there was $17.2 million of total unrecognized compensation expense related to stock options and restricted stock units, which is expected to be recognized over a weighted average period of 1.5 years.
11. Stockholders’ Equity
Reserved Common Stock
As of, June 30, 2020 the Company has reserved 2,376,015 shares of common stock for use in settling outstanding options and unvested restricted stock units that have not been issued as well as future awards available for grant under the 2007 and 2017 Plans.
Common Stock Repurchase Programs
In November 2018, the Company announced that the Board had authorized a $25.0 million stock repurchase program (the “November 2018 Repurchase Program”) under which the Company is authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions at prices and in a manner that may be determined by management. The Company repurchased 736,760 shares at an aggregate purchase price of approximately $14.8 million during the first quarter of 2020 under the November 2018 Stock Repurchase Program. No amounts were repurchased under this plan during the second quarter of 2020 and the November 2018 Repurchase Program was terminated in May 2020.
On May 1, 2020, the Company’s Board of Directors approved a new two-year $25.0 million stock repurchase program (the “May 2020 Repurchase Program”). Repurchases of the Company's stock under the May 2020 Repurchase Program may be made in the open market, in privately negotiated transactions, or pursuant to one or more trading plans. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as the market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The May 2020 Repurchase Program may be modified, suspended or discontinued at any time. No amounts were repurchased under May 2020 Repurchase Program during the second quarter of 2020.
Repurchased shares are recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All share repurchases were funded with cash on hand.
19
12. Income Taxes
The Company measures its interim period tax expense using an estimated annual effective tax rate and adjustments for discrete taxable events that occur during the interim period. The estimated annual effective income tax rate is based upon the Company’s estimations of annual pre-tax income, the geographic mix of pre-tax income, and its interpretations of tax laws. The Company updates the estimate of its annual effective tax rate at the end of each quarterly period. The Company recorded income tax expense of $3.0 million and $2.6 million the six months ended June 30, 2020 and June 30, 2019 respectively.
13. Segment Information
The Company views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations and how its executive management team reviews results and makes decisions on how to allocate resources and assess performance.
Geographic Data
Net sales by campaign target area were as follows (1):
|
For the Three Months Ended
June 30,
|
|
For the Six Months Ended
June 30,
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
North America
|
$
|
21,106
|
|
|
$
|
23,353
|
|
$
|
40,855
|
|
|
$
|
43,631
|
|
International
|
|
13,690
|
|
|
|
10,933
|
|
|
25,357
|
|
|
|
20,627
|
|
Total
|
$
|
34,796
|
|
|
$
|
34,286
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
|
(1)
|
Net sales to customers by campaign target area is based on the geo-targeted (target audience) location of the campaign.
|
Net sales to unaffiliated customers by geographic area were as follows (2):
|
For the Three Months Ended
2020
|
|
For the Six Months Ended
June 30,
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
United States
|
$
|
24,197
|
|
|
$
|
25,813
|
|
$
|
46,634
|
|
|
$
|
48,063
|
|
United Kingdom
|
|
4,531
|
|
|
|
3,324
|
|
|
8,323
|
|
|
|
6,433
|
|
Other international
|
|
6,068
|
|
|
|
5,149
|
|
|
11,255
|
|
|
|
9,762
|
|
Total
|
$
|
34,796
|
|
|
$
|
34,286
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
|
(2)
|
Net sales to unaffiliated customers by geographic area is based on the customers’ current billing addresses and does not consider the geo-targeted (target audience) location of the campaign.
|
Long-lived assets by geographic area were as follows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
United States
|
|
$
|
109,402
|
|
|
$
|
102,572
|
|
International
|
|
|
4,043
|
|
|
|
4,148
|
|
Total
|
|
$
|
113,445
|
|
|
$
|
106,720
|
|
Long-lived assets are comprised of property and equipment, net; goodwill; and intangible assets, net. No single country outside of the U.S. accounted for 10% or more of the Company’s long-lived assets during either of these periods.
20
14. Acquisition
On February 18, 2020, the Company acquired substantially all of the operating assets of Data Science Central LLC, which is a niche digital publishing and media company focused on data science and business analytics for $5.5 million, plus a potential future earnout valued at $0.9 million at the time of acquisition, which is currently valued at $1.1 million (Note 4). A $5.0 million cash payment was made at closing, with the remainder due in fiscal year 2021. The earnout is subject to certain revenue growth targets and the payment is adjusted based on actual results. If all targets are met, the total purchase price, including the earnout, shall not exceed $7.5 million which will become payable upon the achievement of certain revenue objectives during the next two years.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including those discussed below in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2019 under Part I, Item 1A, “Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 under Part II, Item 1A, “Risk Factors” under Part I, Item 1A, “Risk Factors,” and in the other documents we file with the Securities and Exchange Commission. Please refer to our “Forward-Looking Statements” section on page 35.
Overview
TechTarget, Inc. (“we” or “the Company”) is a Delaware corporation incorporated on September 14, 1999. Through continued innovation around our specialized online content for buyers of enterprise technology solutions we have become a global leader in purchase intent-driven marketing and sales services that deliver business impact for enterprise business-to-business “B2B” technology companies. Our offerings enable B2B technology companies to better identify, reach and influence corporate enterprise technology decision makers actively researching specific enterprise technology purchases. We improve a vendor’s ability to impact these audiences for business growth using advanced targeting, analytics and data services complemented with customized marketing programs that integrate demand generation, brand marketing and advertising techniques.
Enterprise technology has become increasingly specialized, and the websites within our network of over 140 websites address every major enterprise technology segment such as storage, security, networking, and business applications. Enterprise technology and business professionals rely on us for key decision support information tailored to their specific areas of responsibility.
We enable enterprise technology and business professionals to navigate the complex and rapidly-changing enterprise technology landscape where purchasing decisions can have significant financial and operational consequences. Our content strategy includes three primary sources that enterprise technology and business professionals use to assist them in their pre-purchase research: independent content provided by our professionals, vendor-generated content provided by our customers and member-generated, or peer-to-peer, content. In addition to utilizing our independent editorial content, registered members appreciate the ability to deepen their pre-purchase research by accessing the extensive vendor supplied content available across our website network. Likewise, these members derive significant additional value from the ability our network provides to seamlessly interact with and contribute to information exchanges in a given field.
We had approximately 20.5 million and 19.8 million registered members – our “audiences” – as of June 30, 2020 and 2019 respectively. During the second quarter of 2020, the Company ended a partnership with a company covering the Belgium, Netherlands, and Luxembourg (“Benelux”) region. This reduced our member number by 0.5 million. Additionally, we restated our 2019 membership to remove the Benelux member number as of June 30, 2019 (0.5 million). We believe that we have sufficient members within our remaining database to support our business needs within the Benelux region. While the size of our registered member base does not provide direct insight into our customer numbers or our revenues, the value of our services sold to our customers is a direct result of the breadth and reach of this content footprint. This footprint creates the opportunity for our customers to gain business leverage by targeting our audiences through customized marketing programs. Likewise, the behavior exhibited by these audiences enables us to provide our customers with data products to improve their marketing and sales efforts. The targeted nature of our member base enables B2B technology companies to reach a specialized audience efficiently because our content is highly segmented and aligned with the B2B technology companies’ specific products. With it, we have developed a broad customer base and, in 2020 expect to deliver marketing and sales services programs to approximately 1,400 customers.
22
Executive Summary
COVID-19 Business Update
We finished the second quarter of 2020 in a strong financial position. As of June 30, 2020, our balance sheet included:
|
|
Cash and investments:
|
$55.4 million
|
Current portion debt:
|
$1.6 million
|
Long-term portion debt:
|
$21.5 million
|
Our remaining debt obligation for 2020, including required interest payments, is approximately $1.0 million. We generated $21.8 million in cash from operations during the six months ended June 30, 2020. In July 2020, we obtained a $20 million line of credit with Western Alliance Bank. While we do not have any current plans to utilize the line of credit, we feel that the line of credit provides us with additional flexibility in the current economic environment. We expect to be able to maintain adequate liquidity to satisfy our cash needs as we navigate through the current environment, although we could experience significant fluctuations in our cash flows from period to period. If necessary, we may take additional steps to preserve adequate liquidity, including through accessing capital markets and other sources of external financing.
During the second quarter we saw similar trends that we saw at the end of the first quarter. We saw a general shift in customer behavior moving away from longer term contracts in favor of shorter term contracts, which allow our customers greater flexibility. Additionally, our ability to attract new customer to longer term contracts was impacted as a result of the general cautiousness related to the COVID-19 environment. These factors resulted in Priority Engine revenue growth of only 1% over last year. We saw weakness from the Global 10 accounts, in particular their investments in their branding.
Our revenue growth in quarter was driven in large part due to increases in our international revenue. We believe the increase in international revenue was driven by three items:
|
•
|
We continue to benefit from the opt-in nature of our audience.
|
|
•
|
We own our own and operate our own websites which provides us with first party data.
|
|
•
|
Historically, face to face events were more prevalent outside the United States and we are seeing some of those budgets reallocated to online, intent-based offerings.
|
We continue to prepare for a new release of Priority Engine (expected after Labor Day). This release will include further enhancements for field sales use cases.
Even after the easing of governmental restrictions and the severity of the COVID-19 crisis lessens, we could experience further fluctuations in our results of operations and cash flows resulting from the ongoing global impacts of the crisis and our customers’ realignment of their marketing and sales budgets.
Our priorities remain to ensuring the health and safety of our employees, customers, vendors, members, stockholders, and other stakeholders, while delivering our content and services to our customers around the world and continuing to drive long-term growth.
Impacts on Future Financial Results
At the beginning of 2020, we expected the strong demand we saw in 2019 to continue. However, beginning in March, we saw certain customers extend their normal sales cycles and shift their budgets away from long-term commitments to shorter-term marketing campaigns as they began to navigate through the pandemic. This trend continued throughout the second quarter of 2020 and through the date of this report. We expect these adverse impacts to result in lower revenue for the duration of the pandemic. The impact COVID-19 will have on our 2020 results remains uncertain, and we continue to evaluate the impacts the pandemic will have on our business operations and strategy going forward. We believe we will return to normal growth rates when the macro environment improves.
23
For the Six Months Ended June 30, 2020 Financial Results
Our revenues for the six months ended June 30, 2020 increased by $2.0 million, or 3%, to $66.2 million, compared with $64.3 million, during the same period in 2019. Priority Engine™ revenues increased 6% to more than $25.0 million, in the first six months of 2020 compared with $23.6 million in the first six months of 2019. This increase was offset, in part, by our legacy Global customers, who decreased their spend, particularly as it related to our brand offerings.
The amount of revenue that we derived from longer-term contracts in the second quarter of 2020 increased 6%, compared to the second quarter of 2019. As we noted above, we saw some of our customers shift from long-term commitments to shorter-term commitments.
We continue to benefit from our customers’ increasing demand for purchase intent data to fuel their sales and marketing outreach. Another important factor in our revenue trajectory relates to the evolving way our customers use our purchase intent data relative to our offerings. Our offerings help customers identify “in-market” prospects for their products and services – our offerings help them reach, influence, and activate these prospects. A growing number of customers purchase “always on” programs from us that combine offerings to identify and influence active buyers throughout the year. The growth in our longer-term revenue component is evidence of our continued traction for these types of integrated programs. Additionally, customers use our offerings to support quarterly sales and marketing campaigns. These purchases are more fluid – customers of this type may focus more on offerings in a particular campaign, and shift objectives as opposed to an “always on” program.
Our international geo-targeted revenues, where our target audience is outside North America (“International”), increased 25% for the three months ended June 30, 2020, compared with the prior year period driven by the items noted above.
Gross profit percentage was 75% and 77% for the three months ended June 30, 2020 and 2019, respectively. Gross profit decreased by $0.3 million, mainly due to product mix compared to the same period a year ago.
24
Business Trends
The following discussion highlights key trends affecting our business not including items relating to the global pandemic, which is discussed in further detail above.
|
•
|
Brexit. The United Kingdom’s June 2016 referendum, in which voters approved an exit of the United Kingdom from the European Union, commonly referred to as “Brexit,” resulted in significant general economic uncertainty as well as volatility in global stock markets and currency exchange rate fluctuations. In March 2017, the United Kingdom served notice to the European Council under Article 50 of the Lisbon Treaty of its intention to withdraw from the European Union. As of January 30, 2020, the United Kingdom’s membership in the European Union was terminated and an eleven month transition period began which will allow time for a free trade agreement to be negotiated. If no agreement can be reached at the end of this transition period, it could mean that the United Kingdom will face tariffs on goods traveling to the EU. Brexit could subject us to new regulatory costs and compliance obligations (including regarding the treatment and transfer of personal data). The full effect of Brexit remains uncertain and depends on any agreements the United Kingdom may make to retain access to the EU market. Moreover, the overall impact of Brexit may create further global economic uncertainty, which may cause a subset of our customers to more closely monitor their costs in the affected region. Our revenue generated from customers who have billing addresses within the United Kingdom was approximately 10% of our total revenues for both periods ended June 30, 2020 and 2019, respectively.
|
|
•
|
Privacy. On July 16, 2020, the Court of Justice of the European Union invalidated the EU-US Privacy Shield Framework and upheld the adequacy of the use of EU Standard Contractual Clauses. We, along with thousands of other companies, relied on this EU-US Privacy Shield Framework, among other mechanisms, for the transfer of personal data to data processors established outside of the EU. The U.S Department of Commerce, European Commission and the European Data Protection Board remain in close contact regarding the impact of the CJEU decision and supervisory authorities are expected to issue further guidance to business. We are evaluating what additional mechanisms or actions may be required to establish adequate safeguards for the further transfer of personal data.
|
|
•
|
Product. Purchase intent data continues to drive our product strategy. During 2020, we intend to make our purchase intent data more readily available for salespersons at our customers, focusing on connectivity, ROI metrics and attribution. (expected release after Labor Day). Additionally, we will be focusing on extending the market reach of our purchase intent data, with a Priority Engine offering (Priority Engine Express) tailored for the SMB market. We continue to anticipate Priority Engine Express will ramp up the back half of 2020.
|
|
•
|
Customer Demographics. In the three months ended June 30, 2020, revenues from our legacy global customers decreased approximately 26% compared to the same period a year ago. Revenues from our largest 100 customers, excluding the legacy global customers described above increased by approximately 16% compared to the same period a year ago. Revenues attributable to remaining customers, which tend to be venture capital-backed start-ups that primarily operate in North America, increased by approximately 5% over the prior year period.
|
|
•
|
Geographic. During the three months ended, June 30, 2020 approximately 39% of our revenues were derived from International campaigns.
|
25
Revenues
Revenue changes for the three and six month period ended, June 30, 2020 as compared to the same period in 2019, are shown in the table below. See the discussion above and Note 3 and Note 13 to our consolidated financial statements for additional information on our revenues.
|
For the Three Months Ended
June 30,
|
|
Percent Change
|
|
For the Six Months Ended
June 30,
|
|
Percent Change
|
|
|
2020
|
|
|
2019
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
North America
|
$
|
21,106
|
|
|
$
|
23,353
|
|
-10%
|
|
$
|
40,855
|
|
|
$
|
43,631
|
|
-6%
|
|
International
|
|
13,690
|
|
|
|
10,933
|
|
25%
|
|
|
25,357
|
|
|
|
20,627
|
|
23%
|
|
Total
|
$
|
34,796
|
|
|
$
|
34,286
|
|
1%
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
3%
|
|
We sell customized marketing programs to B2B technology companies targeting a specific audience within a particular enterprise technology or business sector or sub-sector. We maintain multiple points of contact with our customers to provide support throughout their organizations and their customers’ enterprise technology sales cycles. As a result, our customers often run multiple advertising programs with us in order to target their desired audience of enterprise technology and business professionals more effectively. There are multiple factors that can impact our customers’ marketing and advertising objectives and spending with us, including but not limited to, enterprise technology product launches, increases or decreases to their advertising budgets, the timing of key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads. Our products and services are generally delivered under short-term contracts that run for the length of a given program, typically less than nine months. We continue to enter into longer-term contracts with certain customers, and in the quarter ended, June 30, 2020 approximately 34% of our revenues were from longer-term contracts of approximately twelve months.
Product and Service Offerings
We use our offerings to provide B2B technology companies with numerous touch points to identify, reach and influence key enterprise technology decision makers. The following is a description of the products and services we offer:
IT Deal Alert. IT Deal Alert is a suite of products and services for B2B technology companies that leverages the detailed purchase intent data that we collect about end-user enterprise technology organizations. Through proprietary scoring methodologies, we use this insight to help our customers identify and prioritize accounts whose content consumption around specific enterprise technology topics indicates that they are “in-market” for a particular product or service. We also use the data directly to identify and further profile accounts’ upcoming purchase plans.
|
•
|
Priority Engine™. Priority Engine is a subscription service powered by our Activity Intelligence platform, which integrates with customer relationship management and marketing automation platforms from salesforce.com, Marketo, Eloqua, Pardot, and Integrate. The service delivers information that enables marketers and sales personnel to identify and understand accounts and individuals actively researching new technology purchases and then to engage those active prospects within the organizations that are relevant to the purchase. We sell this service in approximately 200 technology-specific segments which our customers use for demand generation, account-based marketing and other marketing and sales activities. Priority Engine is also available with specific geographic focus, bringing the total available segments to over 300.
|
26
|
•
|
Sales Quality Leads. Are a suite of products which accelerate inside sales efforts by enabling our customers to prioritize their resources. Qualified Sales Opportunities™ is a product that profiles specific in-progress purchase projects, including information on scope and purchase considerations, in approximately 80 technology-specific segments. Building on the success of our Qualified Sales Opportunities product, Sales-Ready Leads and High-Quality Leads, which were launched in 2020, round out our qualified sales solutions with levels of pre-qualification tailored to the specific needs of our clients and their varied use cases.
|
|
•
|
Deal Data™. Deal Data is a customized solution aimed at sales intelligence and data scientist functions within our customer organizations. It renders our Activity Intelligence data into one-time offerings directly consumable by the customer's internal applications.
|
Demand Solutions. Our offerings enable our customers to reach and influence prospective buyers through content marketing programs designed to generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers. This allows B2B technology companies to maximize return on investment by capturing sales leads from the distribution and promotion of content to our audience of enterprise technology and business professionals. Our demand solutions offerings may include the following program components:
|
•
|
White Papers. White papers are technical documents created by B2B technology companies to describe business or technical problems which are addressed by the vendors’ products or services. In a program that includes demand solutions, we post white papers on our relevant websites and our members receive targeted promotions about these content assets. Prior to viewing white papers, our registered members and visitors supply their corporate contact information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are supplied to the vendor in near real time through our proprietary lead management software.
|
|
•
|
Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcasts, podcasts, videocasts, virtual trade shows and similar content bring informational sessions directly to attendees’ desktops and mobile devices. As is the case with white papers, our members supply their corporate contact and qualification information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to the registrant information and visibility before, during and after the event.
|
|
•
|
Content Sponsorships. B2B technology companies, or groups of vendors, pay us to sponsor independent editorially created content vehicles on specific technology topics where the registrant information is then provided to all participating sponsors. In some cases, these vehicles are supported by multiple sponsors in a single segment, with the registrant information provided to all participating sponsors. Because these offerings are editorially driven, our customers get the benefit of association with independently created content as well as access to sales leads that are researching the topic.
|
Brand Solutions. Our suite of brand solutions offerings provides B2B technology companies exposure to targeted audiences of enterprise technology and business professionals actively researching information related to their products and services. We leverage our Activity Intelligence to enable significant segmentation and targeting of specific audiences that can be accessed through these programs. Components of brand programs may include:
|
•
|
On-Network Branding. These offerings enable our customers to influence prospective buyers through display advertising purchased on the websites we operate. Programs may include specific sites or audience segments across our sites.
|
|
•
|
Off-Network Branding. Our Off-Network offerings allow our customers to influence prospective buyers through display advertising when they are visiting other websites on the internet. We identify audience segments that can be targeted based on their activity and demonstrated interests against our content and websites, and offer an array of audience extension and retargeting solutions that leverage Activity Intelligence.
|
|
•
|
Microsites and Related Formats. We have a range of solutions that create stand-alone websites for B2B Technology Companies, or “embedded” websites that exist within the context of our existing websites, to enable a more immersive experience for enterprise technology and business professionals with the content and brand messaging of the vendor.
|
27
Custom Content Creation. We will at times create white papers, case studies, webcasts or videos to our customers’ specifications through our Custom Content team. These customized content assets are then promoted to our audience within both demand solutions and brand solutions programs.
Our suite of demand solutions offerings allows B2B technology companies to maximize return on investment by capturing sales leads from the distribution and promotion of content to our audience of enterprise technology and business professionals. Our demand solutions campaigns typically offer the Activity Intelligence Dashboard, a tool that gives our customers’ marketers and sales representatives a near real-time view of their prospects including insights on the research activities
Cost of Revenues, Operating Expenses, and Other
Expenses consist of cost of revenues, selling and marketing, product development, general and administrative, depreciation and amortization, and interest and other expense, net. Personnel-related costs are a significant component of each of these expense categories except for depreciation and amortization and interest and other expense, net.
Cost of Revenues. Cost of revenues consists primarily of: salaries and related personnel costs; member acquisition expenses (primarily keyword purchases from leading internet search sites); freelance writer expenses; website hosting costs; vendor expenses associated with the delivery of webcast, podcast, videocast and similar content, and other offerings; stock-based compensation expenses; facility expenses, and other related overhead.
Selling and Marketing. Selling and marketing expenses consist primarily of: salaries and related personnel costs; sales commissions; travel-related expenses; stock-based compensation expenses; facility expenses and other related overhead. Sales commissions are recorded as expense when earned by the employee, based on recorded revenues.
Product Development. Product development includes the creation and maintenance of our network of websites, advertiser offerings and technical infrastructure. Product development expense consists primarily of salaries and related personnel costs; stock-based compensation expenses; facility expenses, and other related overhead.
General and Administrative. General and administrative expenses consist primarily of salaries and related personnel costs; facility expenses and related overhead; accounting, legal and other professional fees; and stock-based compensation expenses.
Depreciation and Amortization. Depreciation expense consists of the depreciation of our property and equipment and other capitalized assets. Depreciation is calculated using the straight-line method over their estimated useful lives, ranging from three to twelve years. Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from 2 to 17 years, using methods that are expected to reflect the estimated pattern of economic use.
Interest and Other Income (Expense), Net. Interest and other expense, net consists primarily of interest costs and the related amortization of deferred issuance costs on amounts borrowed under our Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank and amortization of premiums on our investments, less any interest income earned on cash, and short-term and long-term investments. We historically have invested our cash in money market accounts, municipal bonds, government agency bonds, U.S. Treasury securities and corporate bonds. Other expense, net consists of non-operating gains or losses, primarily related to realized and unrealized foreign currency gains and losses on trade assets and liabilities.
Application of Critical Accounting Policies and Use of Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”). The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenues, long-lived assets, goodwill, allowance for doubtful accounts, stock-based compensation, contingent liabilities, self-insurance accruals and income taxes. We based our estimates of the carrying value of certain
28
assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Our actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are those that affect our more significant judgments used in the preparation of our consolidated financial statements. A description of our critical accounting policies and estimates is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Other than those noted in Note 2 to our consolidated financial statements, there were no material changes to our critical accounting policies and estimates during the first six months of 2020.
Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.
Our deferred tax assets are comprised primarily of book to tax differences on stock-based compensation and timing of deductions for rent expense, accrued expenses, depreciation, and amortization. As of June 30, 2020, we had foreign net operating loss (“NOL”) carryforwards of $0.2 million, which may be used to offset future taxable income in foreign jurisdictions indefinitely.
Results of Operations
The following table sets forth our results of operations for the periods indicated, including percentage of total revenues:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
34,796
|
|
|
|
100
|
%
|
|
$
|
34,286
|
|
|
|
100
|
%
|
$
|
66,212
|
|
|
|
100
|
%
|
|
$
|
64,258
|
|
|
|
100
|
%
|
Cost of revenues
|
|
|
8,785
|
|
|
|
25
|
%
|
|
|
7,952
|
|
|
|
23
|
%
|
$
|
16,936
|
|
|
|
26
|
%
|
|
|
14,964
|
|
|
|
23
|
%
|
Gross profit
|
|
|
26,011
|
|
|
|
75
|
%
|
|
|
26,334
|
|
|
|
77
|
%
|
|
49,276
|
|
|
|
74
|
%
|
|
|
49,294
|
|
|
|
77
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
12,570
|
|
|
|
36
|
%
|
|
|
13,976
|
|
|
|
41
|
%
|
|
25,519
|
|
|
|
39
|
%
|
|
|
26,422
|
|
|
|
41
|
%
|
Product development
|
|
|
1,846
|
|
|
|
5
|
%
|
|
|
2,001
|
|
|
|
6
|
%
|
|
3,878
|
|
|
|
6
|
%
|
|
|
3,988
|
|
|
|
6
|
%
|
General and administrative
|
|
|
3,267
|
|
|
|
9
|
%
|
|
|
3,123
|
|
|
|
9
|
%
|
|
6,622
|
|
|
|
10
|
%
|
|
|
6,145
|
|
|
|
10
|
%
|
Depreciation and amortization
|
|
|
1,453
|
|
|
|
4
|
%
|
|
|
1,146
|
|
|
|
3
|
%
|
|
2,798
|
|
|
|
4
|
%
|
|
|
2,276
|
|
|
|
4
|
%
|
Total operating expenses
|
|
|
19,136
|
|
|
|
55
|
%
|
|
|
20,246
|
|
|
|
59
|
%
|
|
38,817
|
|
|
|
59
|
%
|
|
|
38,831
|
|
|
|
60
|
%
|
Operating income
|
|
|
6,875
|
|
|
|
20
|
%
|
|
|
6,088
|
|
|
|
18
|
%
|
|
10,459
|
|
|
|
16
|
%
|
|
|
10,463
|
|
|
|
16
|
%
|
Interest and other expense, net
|
|
|
(10
|
)
|
|
|
0
|
%
|
|
|
(253
|
)
|
|
|
-1
|
%
|
|
(479
|
)
|
|
|
-1
|
%
|
|
|
(390
|
)
|
|
|
-1
|
%
|
Income before provision for income taxes
|
|
|
6,865
|
|
|
|
20
|
%
|
|
|
5,835
|
|
|
|
17
|
%
|
|
9,980
|
|
|
|
15
|
%
|
|
|
10,073
|
|
|
|
16
|
%
|
Provision for income taxes
|
|
|
2,092
|
|
|
|
6
|
%
|
|
|
1,684
|
|
|
|
5
|
%
|
|
3,000
|
|
|
|
5
|
%
|
|
|
2,632
|
|
|
|
4
|
%
|
Net income
|
|
$
|
4,773
|
|
|
|
14
|
%
|
|
$
|
4,151
|
|
|
|
12
|
%
|
$
|
6,980
|
|
|
|
11
|
%
|
|
$
|
7,441
|
|
|
|
12
|
%
|
Comparison of Three Months Ended June 30, 2020 and June 30, 2019
Revenues
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Increase
|
|
Percent
Change
|
|
Revenues
|
|
$
|
34,796
|
|
|
$
|
34,286
|
|
$
|
510
|
|
|
1
|
%
|
The increase in revenues was due to customers increasing their spend for data driven marketing products. Priority Engine revenue grew 1% versus last year to $12.5 million. Increases in lead generation, driven by the customers movement to shorter term contracts, were offset by decreases in brand.
29
Cost of Revenues and Gross Profit
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Cost of revenues
|
|
$
|
8,785
|
|
|
$
|
7,952
|
|
|
$
|
833
|
|
|
|
10
|
%
|
Gross profit
|
|
$
|
26,011
|
|
|
$
|
26,334
|
|
|
$
|
(323
|
)
|
|
|
-1
|
%
|
Gross profit percentage
|
|
|
75
|
%
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage was 75% for the three months ended 2020 and 77% for the three months of June 30, 2019. Gross profit decreased by $0.3 million in the three months ended June 30, 2020 compared to the same period in 2019, primarily attributable to the product mix as compared to the same period a year ago. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period.
Operating Expenses and Other
|
|
Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
$
|
12,570
|
|
|
$
|
13,976
|
|
|
$
|
(1,406
|
)
|
|
|
-10
|
%
|
Product development
|
|
|
1,846
|
|
|
|
2,001
|
|
|
|
(155
|
)
|
|
|
-8
|
%
|
General and administrative
|
|
|
3,267
|
|
|
|
3,123
|
|
|
|
144
|
|
|
|
5
|
%
|
Depreciation and amortization
|
|
|
1,453
|
|
|
|
1,146
|
|
|
|
307
|
|
|
|
27
|
%
|
Total operating expenses
|
|
$
|
19,136
|
|
|
$
|
20,246
|
|
|
$
|
(1,110
|
)
|
|
|
-5
|
%
|
Interest and other expense, net
|
|
$
|
(10
|
)
|
|
$
|
(253
|
)
|
|
$
|
243
|
|
|
|
96
|
%
|
Provision for income taxes
|
|
$
|
2,092
|
|
|
$
|
1,684
|
|
|
$
|
408
|
|
|
|
24
|
%
|
Selling and Marketing. Selling and marketing expenses decreased for the three months ended June 30, 2020, as compared to the same period in 2019, primarily due to decreases in stock-based compensation expense (accounting for 60% of the overall decrease) and contracted services as well as a reduction of travel and entertainment expenses related to COVID-19 circumstances.
Product Development. Product development expense decreased for the three months ended June 30, 2020, as compared to the same period in 2019, mainly due to an increase in labor and related costs capitalized offset, in part, by increases in contracted services.
General and Administrative. General and administrative expense increased for the three months ended June 30, 2020, compared to the same period in 2019, due to an increase in stock compensation expenses offset in part by decreases in other labor costs.
Depreciation and Amortization. Depreciation and amortization expense increased due to newly acquired intangible assets with high value, which were placed in service during 2020 and amortized during the three months ended June 30, 2020 Those intangible assets were not in service during the same period in 2019.
30
Comparison of Six Months Ended June 30, 2020 and June 30, 2019
Revenues
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Increase
|
|
Percent
Change
|
|
Revenues
|
|
$
|
66,212
|
|
|
$
|
64,258
|
|
$
|
1,954
|
|
|
3
|
%
|
The increase in revenues was due to customers increasing their spending for data driven marketing products. Priority Engine™ revenues were up 6% in the six months ended June 30, 2020. Increases in lead generation, driven by the customers movement to shorter term contracts, were offset by decreases in brand.
Cost of Revenues and Gross Profit
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Cost of revenues
|
|
$
|
16,936
|
|
|
$
|
14,964
|
|
|
$
|
1,972
|
|
|
|
13
|
%
|
Gross profit
|
|
$
|
49,276
|
|
|
$
|
49,294
|
|
|
$
|
(18
|
)
|
|
|
(0
|
)%
|
Gross profit percentage
|
|
|
74
|
%
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage was 74% for the first six months of 2020 and 77% for the six months ended June 30, 2019. Gross profit remained relatively flat in the six months ended June 30, 2020 compared to the same period in 2019, primarily attributable to a shift in the product mix compared to the same period a year ago. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period.
Operating Expenses and Other
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
$
|
25,519
|
|
|
$
|
26,422
|
|
|
$
|
(903
|
)
|
|
|
-3
|
%
|
Product development
|
|
|
3,878
|
|
|
|
3,988
|
|
|
|
(110
|
)
|
|
|
-3
|
%
|
General and administrative
|
|
|
6,622
|
|
|
|
6,145
|
|
|
|
477
|
|
|
|
8
|
%
|
Depreciation and amortization
|
|
|
2,798
|
|
|
|
2,276
|
|
|
|
522
|
|
|
|
23
|
%
|
Total operating expenses
|
|
$
|
38,817
|
|
|
$
|
38,831
|
|
|
$
|
(14
|
)
|
|
|
0
|
%
|
Interest and other expense, net
|
|
$
|
(479
|
)
|
|
$
|
(390
|
)
|
|
$
|
(89
|
)
|
|
|
23
|
%
|
Provision for income taxes
|
|
$
|
3,000
|
|
|
$
|
2,632
|
|
|
$
|
368
|
|
|
|
14
|
%
|
Selling and Marketing. Selling and marketing expenses decreased for the six months ended June 30, 2020, as compared to the same period in 2019, primarily due to decreases in stock-based compensation expenses (accounting for 39% of the overall decrease) and contracted services as well as a reduction of travel and entertainment expenses related to COVID-19.
Product Development. Product development expense decreased for the six months ended June 30, 2020, as compared to the same period in 2019, primarily due to additional amounts that were capitalized over the six months ended June 30, 2019 offset in part by increases in contracted services.
General and Administrative. General and administrative expense increased for the six months ended June 30, 2020, compared to the same period in 2019, primarily due to increases in stock compensation expense.
Depreciation and Amortization. Depreciation and amortization expense increased for the six months ended June 30, 2020 when compared to the same period in 2019, due to increased amortization expense related to the Company’s acquisition during February of 2020.
31
Seasonality
The timing of our revenues is affected by seasonal factors. Our revenues are seasonal primarily as a result of the annual budget approval process of many of our customers, the normal timing at which our customers introduce new products, and the historical decrease in advertising in summer months. The timing of revenues in relation to our expenses, many of which do not vary directly with revenues, has an impact on the cost of online revenues, selling and marketing, product development, and general and administrative expenses as a percentage of revenues in each calendar quarter during the year.
The majority of our expenses are personnel-related and includes salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period.
Liquidity and Capital Resources
Resources
Our cash and investments at June 30, 2020 totaled $55.4 million, a $2.1 million decrease from December 31, 2019, primarily driven by the repurchase of shares of our common stock under our November 2018 Repurchase Program, the acquisition of substantially all the operating assets of Data Science Central in February 2020, investments in property and equipment, and principal payments on our term loan partially offset by cash generated from operations. We believe that our existing cash and investments and our cash flow from operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Additionally, we have $20 million available under a new line of credit agreement entered into in July 2020. Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion internationally, future acquisitions we might undertake, and any expansion into complementary businesses. To the extent that our cash and investments, cash flow from operating activities, and amounts available under our line of credit are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses.
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Cash and investments
|
|
$
|
55,413
|
|
|
$
|
57,499
|
|
Accounts receivable, net
|
|
$
|
25,568
|
|
|
$
|
27,102
|
|
Cash and Investments
Our cash and investments, at June 30, 2020 were held for working capital purposes. We do not enter into investments for trading or speculative purposes.
Accounts Receivable, Net
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing with which we meet our performance obligations and on the timing of our cash collections, as well as on changes to our allowance for doubtful accounts. We use days sales outstanding (“DSO”) as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at quarter end divided by total revenues for the applicable period, multiplied by the number of days in the applicable period. DSO was 67 days and 69 days at June 30, 2020 and December 31, 2019, respectively.
32
Cash Flows
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by operating activities
|
|
$
|
21,841
|
|
|
$
|
18,819
|
|
Net cash used in investing activities
|
|
$
|
(8,424
|
)
|
|
$
|
(2,879
|
)
|
Net cash used in financing activities
|
|
$
|
(15,517
|
)
|
|
$
|
(6,195
|
)
|
Operating Activities
Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, provisions for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash provided by operating activities for the six months ended June 30, 2020 was $21.8 million compared to cash provided by operating activities of $18.8 million for the six months ended June 30, 2020.
The increase in cash provided by operating activities was primarily the result of changes in working capital (driven mainly by a increases in amounts payable for income and payroll taxes as compared to 2019) offset by decreases in amounts collected from accounts receivable.
Investing Activities
Cash used in investing activities in the six months ended June 30, 2020 was $8.4 million and was primarily a result of the acquisition of substantially all of the operating assets of Data Science Central in February 2020 ($5.0 million) and purchase of property and equipment, primarily for internal-use software, and to a lesser extent, computer equipment. We capitalized internal-use software and website development costs of $3.0 million and $2.6 million for the six months ended June 30, 2020 and 2019, respectively.
Financing Activities
In the first six months of June 30, 2020, we used $15.5 million for financing activities, consisting primarily of $14.8 million, for the purchase of treasury shares, $0.6 million for the repayment of principal under the Loan Agreement and related costs and $0.1 million for tax withholdings related to net share settlements. In the first six months of 2019 we used $6.2 million for financing activities, consisting primarily of $4.7 million for the purchase of treasury shares and related costs, $0.6 million for the repayment of principal on the Loan Agreement, and $0.9 million for tax withholdings related to net share settlements.
Common Stock Repurchase Program
In November 2018 the Company announced that the Board had authorized a $25.0 million stock repurchase program (the “November 2018 Repurchase Program”) under which the Company is authorized to repurchase the Company’s common stock from time to time on the open market or in privately negotiated transactions at prices and in a manner that may be determined by management. The Company repurchased 736,760 shares at an aggregate purchase price of approximately $14.8 million during the first quarter of 2020 under the November 2018 Stock Repurchase Program. No amounts were repurchased under this plan during the second quarter of 2020 and the November 2018 Repurchase Program was terminated in May 2020. During the six months ended June 30, 2019 we repurchased 317,724 shares of common stock for an aggregate purchase price of approximately $4.7 million pursuant to the (“November 2018 Repurchase Program”). The November 2018 Repurchase Program was terminated on May 1, 2020.
On May 1, 2020, the Company’s Board of Directors approved a new two-year $25.0 million stock repurchase program (the “May 2020 Repurchase Program”). Repurchases of the Company's stock under the May 2020 Repurchase Program may be made in the open market, in privately negotiated transactions, or pursuant to one or more trading plans. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as the market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The May 2020 Repurchase Program may be modified, suspended or discontinued at any time. No amounts were repurchased under this program during the second quarter of 2020.
33
Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All repurchased shares were funded with cash on hand.
Term Loan and Credit Facility Borrowings
On December 24, 2018, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank as the lender. The Loan Agreement provides for a $25 million term loan facility with a maturity date of December 10, 2023 (the “Term Loan”).
The borrowings under the Loan Agreement are secured by a lien on substantially all of our assets, including a pledge of the stock of certain wholly-owned subsidiaries (limited, in the case of the stock of certain foreign subsidiaries, to no more than 65% of the capital stock of such subsidiaries). The Term Loan must be repaid quarterly, with applicable interest paid monthly, in the following manner: 1.25% of the initial aggregate borrowings are due and payable each quarter for the first two loan years, 1.88% of the initial aggregate borrowings are due and payable each quarter for the third loan year, and 2.50% of the initial aggregate borrowings are due and payable each quarter for the fourth and fifth loan years. At maturity, all outstanding amounts, including unpaid principal and accrued and unpaid interest, under the Loan Agreement will be due and payable.
The borrowings are subject to a leverage ratio, measured quarterly. The Loan Agreement also requires us to make representations and warranties and to comply with certain other covenants and agreements that are customary in loan agreements of this type. At June 30, 2020, we were in compliance with all covenants under the Loan Agreement.
The Loan Agreement bears interest at a floating per annum rate equal to one and three-eighths percent (1.375%) above the greater of (a) the one (1) month U.S. LIBOR rate reported in The Wall Street Journal and (b) two percent (2.00%).
The Loan Agreement may be prepaid at our option without penalty, provided we comply with the notice provision of the document. The Loan Agreement also contains customary events of default, subject to grace periods in certain cases, which may cause repayment of the Term Loan to be accelerated.
On July 2, 2020, the Company and the Bank entered in a Loan and Security Modification Agreement (the “Modification Agreement”) amending the Loan Agreement between the Company and the Bank. Among other things, the Modification Agreement added or amended certain definitions in the Loan Agreement, added a new asset coverage ratio financial covenant of no less than 1.0 to 1.0 tested as of the end of each quarter, and provided the Company with a new revolving line of credit facility of $20,000,000 (“Line of Credit”). The Line of Credit allows the Company to request non-formula advances in an aggregate principal amount not to exceed the Line of Credit and to use the proceeds of such advances until the facility matures on July 2, 2022. Advances under the Line of Credit bear interest at a floating rate equal to one-quarter percent (0.25%) above the Prime Rate (as published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced from time to time by Western Alliance as its Prime Rate); provided that at no time shall the interest rate on such advances be less than three and one half percent (3.50%). Additionally, the Modification Agreement includes language providing for the Company and the Bank to mutually agree upon a LIBOR replacement if LIBOR ceases to exist or is no longer available.
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Capital Expenditures
We have made capital expenditures primarily for computer equipment and related software needed to host our websites, internal-use software development costs, as well as for leasehold improvements and other general purposes to support our growth. Our capital expenditures totaled $3.3 million and $3.4 million for the six month periods ended June 30, 2020 and, 2019 respectively. A majority of our capital expenditures in the first six months of 2020 were for internal-use software and website development costs and, to a lesser extent, computer equipment and related software. A majority of our capital expenditures in the first six months of 2019 were for leasehold improvements and internal-use software and website development costs and, to a lesser extent, computer equipment and related software. We capitalized internal-use software and website development costs of $3.0 million and $2.6 million for the six months ended June 30, 2020 and 2019, respectively. We are not currently party to any purchase contracts related to future capital expenditures.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
There were no material changes to our contractual obligations and commitments described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or referenced in this Quarterly Report that address activities, events or developments which we expect will or may occur in the future are forward-looking statements, including statements regarding our intent, beliefs or current expectations and those of our management team. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “going to,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, priorities, plans, or intentions. Such statements may include those regarding our future financial results and other projections or measures of our future operating performance, including the drivers of such growth, profitability, and performance (including, in each case, any potential impact of product and service development efforts, GDPR, potential changes to customer relationships, and other operational decisions); expectations concerning market opportunities and our ability to capitalize on them; the amount and timing of the benefits expected from acquisitions, new strategies, products or services and other potential sources of additional revenue; and the behavior of our members, partners, and customers. These statements speak only as of the date of this Quarterly Report and are based on our current plans and expectations. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those relating to: market acceptance of our products and services, including continued increased sales of our IT Deal Alert offerings and continued increased international growth; relationships with customers, strategic partners and employees; the duration and extent of the COVID-19 pandemic; difficulties in integrating acquired businesses; changes in economic or regulatory conditions or other trends affecting the internet, internet advertising and information technology industries; data privacy laws, rules, and regulations; and other matters included in our SEC filings, including in our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contemplated by the forward-looking statements. We undertake no obligation to update our forward-looking statements to reflect future events or circumstances.
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