TechTarget(TTGT) - 2018 Q4 - Annual Report

PART I Business TechTarget is a global leader in purchase intent-driven marketing and sales services for enterprise technology vendors - The company operates a network of over 140 websites focused on specific IT sectors, serving as a key resource for IT and business professionals[13] - Key Operational Metrics (as of Dec 31, 2018) | Metric | Value | | :--- | :--- | | Registered Members | ~20.0 million | | Customers in 2018 | ~1,300 | - The company's core strategy includes continuing innovation in data-enabled marketing services (like IT Deal Alert™), expanding long-term subscription contracts, growing its international presence (32% of 2018 revenues from international programs), and selectively acquiring complementary businesses[27][29] - TechTarget's main product suites are IT Deal Alert™ (data-driven services like Priority Engine™), Demand Solutions (lead generation through content like white papers and webcasts), and Brand Solutions (display advertising and microsites)[36][39][40] - Primary competitors include media companies like J2 Global, Madison Logic, QuinStreet, and International Data Group, as well as data-oriented businesses such as 6sense and Bombora[49] Risk Factors The company faces significant risks related to its business operations, data privacy, and financial condition - The business is heavily dependent on advertising spending from the IT industry, which is cyclical and can fluctuate significantly, impacting revenues[61][62] - A significant portion of revenue comes from short-term contracts (typically six months or less), which may not be renewed, creating revenue uncertainty[66] - International operations, which accounted for 32% of online revenues from geo-targeted campaigns in 2018, face risks from currency fluctuations, regulatory changes, and economic uncertainty like Brexit, with approximately 12% of revenues from UK-based customers[72][74] - The company faces significant risks from evolving data privacy laws, particularly the EU's General Data Protection Regulation (GDPR), which imposes stringent requirements and substantial penalties for non-compliance[92] - As of December 31, 2018, the company had $93.7 million of goodwill on its balance sheet, which is subject to impairment risk that could negatively impact earnings[112] - A limited number of stockholders, including directors and executive officers, beneficially own approximately 42% of outstanding common stock, giving them substantial influence over corporate matters[118] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[119] Properties The company's global headquarters is a leased 74,000 sq ft office in Newton, MA, with smaller leased offices worldwide - As of December 31, 2018, the company leases approximately 74,000 square feet for its global headquarters in Newton, Massachusetts, with the lease term running through December 31, 2029, and an option to extend for an additional five years[120] Legal Proceedings The company is not a party to any material legal proceedings or aware of any materially impactful pending litigation - The company is not currently a party to any material legal proceedings[121] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TechTarget's common stock trades on Nasdaq under 'TTGT', with no dividends paid and a $25.0 million stock repurchase program - The company's common stock is listed on the Nasdaq Global Market under the trading symbol "TTGT"[123] - The company has not paid any cash dividends in the last three fiscal years and does not anticipate paying them in the foreseeable future, intending to retain earnings for business development[125] - Issuer Purchases of Equity Securities (Q4 2018) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Value (Approx.) | | :--- | :--- | :--- | :--- | | Nov 2018 | 30,316 | $15.13 | $458,700 | | Dec 2018 | 213,109 | $12.49 | $2,661,700 | | Total Q4 | 243,425 | $12.82 | $3,120,400 | - In November 2018, the Board of Directors approved a new stock repurchase program authorizing the purchase of up to $25.0 million of its common stock, which expires in December 2020, with approximately $21.9 million remaining available as of December 31, 2018[132] Selected Financial Data This section provides a five-year summary of key financial data, including revenues, net income, and Adjusted EBITDA - Selected Financial Data (2014-2018) | Metric (in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $121,333 | $108,556 | $106,625 | $111,826 | $106,203 | | Operating Income | $16,621 | $10,410 | $6,791 | $12,170 | $7,459 | | Net Income | $12,955 | $6,803 | $2,419 | $7,186 | $4,081 | | Diluted EPS | $0.45 | $0.24 | $0.08 | $0.21 | $0.12 | | Adjusted EBITDA | $30,282 | $21,958 | $18,536 | $24,499 | $21,459 | | Total Assets | $176,463 | $173,169 | $170,077 | $177,859 | $177,484 | | Total Stockholders' Equity | $132,585 | $120,747 | $117,563 | $160,001 | $155,846 | - Reconciliation of Net Income to Adjusted EBITDA (2018) | Line Item (in thousands) | Amount | | :--- | :--- | | Net income | $12,955 | | Interest expense, net | $1,300 | | Provision for income taxes | $1,888 | | Depreciation and amortization | $4,548 | | EBITDA | $20,691 | | Stock-based compensation | $9,113 | | Other expense, net | $478 | | Adjusted EBITDA | $30,282 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, revenue growth, shift to longer-term contracts, and liquidity position - Financial Performance Summary (2018 vs. 2017) | Metric (in thousands) | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $121,333 | $108,556 | 12% | | Gross Profit | $92,374 | $80,220 | 15% | | Operating Income | $16,621 | $10,410 | 60% | | Net Income | $12,955 | $6,803 | 90% | - Online Revenue Breakdown (2018 vs. 2017) | Revenue Stream (in thousands) | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Total IT Deal Alert | $59,049 | $49,529 | 19% | | Total Core Online | $62,284 | $58,859 | 6% | | Total International Online | $38,673 | $35,180 | 10% | | Total North America Online | $82,660 | $73,208 | 13% | - The company phased out its events product line in 2017 to focus on its data-driven online offerings, with events revenue at zero in 2018, down from $0.2 million in 2017 and $4.8 million in 2016[151][159] - Cash flow from operations increased to $23.9 million in 2018 from $18.6 million in 2017, primarily due to higher net income[217][219] - In December 2018, the company entered into a new five-year, $25.0 million term loan agreement with Western Alliance Bank, replacing its previous credit facility[228][235] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange fluctuations and interest rate changes, with quantified impacts - The company is exposed to foreign currency risk as 26% of its 2018 revenues were from customers with billing addresses outside the U.S., where a hypothetical 10% unfavorable movement in foreign exchange rates would have decreased operating income by approximately $125,000 for the year[249] - Interest rate risk stems from the $25.0 million variable-rate term loan, where a 200 basis point (2%) increase in interest rates would increase annual interest expense by approximately $0.5 million[252] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2018, including the independent auditor's report - Consolidated Balance Sheet Highlights (as of Dec 31) | Metric (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $34,673 | $25,966 | | Total Current Assets | $70,118 | $67,608 | | Goodwill | $93,687 | $93,793 | | Total Assets | $176,463 | $173,169 | | Total Current Liabilities | $14,553 | $23,986 | | Long-term portion of term loan | $23,714 | $22,339 | | Total Liabilities | $43,878 | $52,422 | | Total Stockholders' Equity | $132,585 | $120,747 | - Consolidated Statement of Income (Year Ended Dec 31) | Metric (in thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total Revenues | $121,333 | $108,556 | $106,625 | | Gross Profit | $92,374 | $80,220 | $76,408 | | Operating Income | $16,621 | $10,410 | $6,791 | | Net Income | $12,955 | $6,803 | $2,419 | - The company adopted the new revenue recognition standard, ASC 606, on January 1, 2018, using the modified retrospective method, resulting in a one-time reduction of deferred revenue by $3.5 million[274][308] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None reported[365] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[367] - There were no changes in internal control over financial reporting during the fourth quarter of 2018 that materially affected, or are reasonably likely to materially affect, internal controls[368] - The independent registered public accounting firm, BDO USA, LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[372][373] Other Information The company reports no other information for this item - None[380] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement - The required information for this item is incorporated by reference from the company's 2019 Proxy Statement[382] - The company has adopted a Code of Business Conduct and Ethics, which is available on its investor relations website[384] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2019 Proxy Statement - The required information for this item is incorporated by reference from the company's 2019 Proxy Statement[385] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2019 Proxy Statement - The required information for this item is incorporated by reference from the company's 2019 Proxy Statement[386] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2019 Proxy Statement - The required information for this item is incorporated by reference from the company's 2019 Proxy Statement[387] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2019 Proxy Statement - The required information for this item is incorporated by reference from the company's 2019 Proxy Statement[388] PART IV Exhibits, Financial Statement Schedules This section lists the consolidated financial statements and exhibits filed with the Form 10-K, with financial statement schedules omitted - This item lists the financial statements and exhibits filed with the Form 10-K, with financial statement schedules omitted[391] Form 10-K Summary The company has not provided a summary for this item - None[398]