Exhibit 99.3
TechTarget, Inc.
Unaudited Pro Forma Combined Financial Statements
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On November 6, 2007, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among TechTarget, Inc., a Delaware corporation ("TechTarget"), Catapult Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Registrant (the “Merger Sub”), and KnowledgeStorm, Inc., a Delaware corporation (“KnowledgeStorm”), the Registrant acquired all of the outstanding capital stock of KnowledgeStorm and the Merger Sub merged with and into KnowledgeStorm, with KnowledgeStorm surviving as a wholly-owned subsidiary of TechTarget (the “Merger”).
Pursuant to the Merger Agreement, TechTarget paid an aggregate purchase price of approximately $58 million, consisting of approximately $52 million in cash and 359,820 shares of TechTarget's common stock valued at $6.0 million, less the sum of the certain transaction expenses, and existing debt obligations, for all of the outstanding capital stock of KnowledgeStorm. Each outstanding option and warrant to purchase KnowledgeStorm’s stock was either terminated and/or cancelled and converted automatically into the right to receive the applicable consideration provided pursuant to the Merger Agreement.
Pursuant to the Merger Agreement, TechTarget deposited the 359,820 shares issued as part of the consideration for KnowledgeStorm’s outstanding capital stock (the “Escrow Shares”) into escrow to secure certain indemnification and other payments under the terms of the Merger Agreement. The Escrow Shares shall be released, absent any claims allowing for reduction of the amount of Escrow Shares held in escrow, on the dates that are six months, one year and eighteen months following November 6, 2007 in amounts equal to (i) in the case of the first release date, 35.834% of the Escrow Shares, (ii) in the case of the second release date, 59.741% of the Escrow Shares and (iii) in the case of the final release date, all of the Escrow Shares held in escrow on such date.
The following unaudited pro forma combined statements of operations combine the statement of operations data for TechTarget and KnowledgeStorm for the year ended December 31, 2006 and for the nine months ended September 30, 2007 as if the acquisition had been completed on January 1, 2006. The following unaudited pro forma combined balance sheet combines balance sheet data for TechTarget and KnowledgeStorm as of September 30, 2007 as if the acquisition had been completed on September 30, 2007. The pro forma financial information is based upon the historical consolidated financial statements of TechTarget and KnowledgeStorm and the assumptions, estimates and adjustments which are described in the notes to the unaudited pro forma combined financial statements. The assumptions, estimates and adjustments are preliminary and have been made solely for purposes of developing such pro forma information. The unaudited pro forma combined financial statements include adjustments that have been made to reflect the preliminary purchase price allocations. These preliminary allocations represent estimates made for purposes of these pro forma financial statements and are subject to change upon a final determination of fair value.
The unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or consolidated results of operations of TechTarget that would have been reported had the acquisitions occurred on the dates indicated, nor do they represent a forecast of the consolidated financial position of TechTarget at any future date or the consolidated results of operations for any future period. Furthermore, no effect has been given in the unaudited pro forma combined statements of operations for synergistic benefits or cost savings that may be realized through the combination of TechTarget and KnowledgeStorm or costs that may be incurred in integrating the two companies. The unaudited pro forma combined financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Registration Statement on Form S-1 (File No. 333-140503), which is on file with the SEC, and TechTarget’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, each of which is incorporated herein by reference, and the historical financial statements and related notes of KnowledgeStorm included in this Form 8-K/A.
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Exhibit 99.3
TechTarget, Inc.
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 2007
(In thousands)
| Historical | Pro forma | Pro forma | |||||||||||||||||
| TechTarget | KnowledgeStorm | Adjustments | Combined | ||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 20,769 | $ | 217 | $ | 2,059 | A, C | $ | 23,045 | ||||||||||
| Short-term investments | 87,901 | - | (51,730 | ) | A | 36,171 | |||||||||||||
| Accounts receivable, net of allowance for doubtful accounts | 12,419 | 2,243 | (1,008 | ) | A, C | 13,654 | |||||||||||||
| Prepaid expenses and other current assets | 3,459 | 159 | (27 | ) | A, C | 3,591 | |||||||||||||
| Deferred tax assets | 735 | - | 2,454 | A, G | 3,189 | ||||||||||||||
| Total current assets | 125,283 | 2,619 | (48,252 | ) | 79,650 | ||||||||||||||
| Property and equipment, net | 3,769 | 806 | (24 | ) | A, C | 4,551 | |||||||||||||
| Goodwill | 43,225 | - | 45,440 | A, B | 88,665 | ||||||||||||||
| Intangible assets, net of accumulated amortization | 12,087 | - | 11,280 | A, B | 23,367 | ||||||||||||||
| Other assets | 105 | 39 | - | 144 | |||||||||||||||
| Deferred tax assets | 1,834 | - | (523 | ) | A, G | 1,311 | |||||||||||||
| Total assets | $ | 186,303 | $ | 3,464 | $ | 7,921 | $ | 197,688 | |||||||||||
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) | |||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||
| Current portion of bank term loan payable | $ | 3,000 | $ | 2,094 | $ | (2,076 | ) | A, C | $ | 3,018 | |||||||||
| Accounts payable | 3,121 | 331 | (98 | ) | A, C | 3,354 | |||||||||||||
| Accrued expenses and other current liabilities | 3,338 | 710 | 3,324 | A, C | 7,372 | ||||||||||||||
| Deferred revenue | 5,590 | 2,338 | (1,495 | ) | A, C | 6,433 | |||||||||||||
| Total current liabilities | 15,049 | 5,473 | (345 | ) | 20,177 | ||||||||||||||
| Long-term liabilities: | |||||||||||||||||||
| Other liabilities | 458 | 258 | (1 | ) | A, C | 715 | |||||||||||||
| Bank term loan payable, net of current portion | 3,750 | 125 | (125 | ) | A, C | 3,750 | |||||||||||||
| Total liabilities | 19,257 | 5,856 | (471 | ) | 24,642 | ||||||||||||||
| Preferred stock | - | 25,985 | (25,985 | ) | D | - | |||||||||||||
| Stockholders' equity (deficit): | |||||||||||||||||||
| Common stock | 41 | 1 | (1 | ) | D | 41 | |||||||||||||
| Additional paid-in capital | 199,689 | 6,336 | (336 | ) | A, D | 205,689 | |||||||||||||
| Warrants | 55 | - | - | 55 | |||||||||||||||
| Accumulated other comprehensive loss | (70 | ) | - | - | (70 | ) | |||||||||||||
| Accumulated deficit | (32,669 | ) | (34,714 | ) | 34,714 | D | (32,669 | ) | |||||||||||
| Total stockholders' equity (deficit) | 167,046 | (28,377 | ) | 34,377 | 173,046 | ||||||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 186,303 | $ | 3,464 | $ | 7,921 | $ | 197,688 | |||||||||||
See accompanying notes to the unaudited pro forma financial information.
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Exhibit 99.3
TechTarget, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2006
(In thousands, except per share amounts)
| Historical | Pro forma | Pro forma | |||||||||||||||||
| TechTarget | KnowledgeStorm | Adjustments | Combined | ||||||||||||||||
| Revenues: | |||||||||||||||||||
| Online | $ | 51,176 | $ | 17,780 | $ | (1,751 | ) | E | $ | 67,205 | |||||||||
| Events | 19,708 | - | - | 19,708 | |||||||||||||||
| 8,128 | - | - | 8,128 | ||||||||||||||||
| Total revenues | 79,012 | 17,780 | (1,751 | ) | 95,041 | ||||||||||||||
| Cost of revenues: | |||||||||||||||||||
Online (1) | 12,988 | 2,733 | - | 15,721 | |||||||||||||||
Events (1) | 6,493 | - | - | 6,493 | |||||||||||||||
Print (1) | 5,339 | - | - | 5,339 | |||||||||||||||
| Total cost of revenues | 24,820 | 2,733 | - | 27,553 | |||||||||||||||
| Gross profit | 54,192 | 15,047 | (1,751 | ) | 67,488 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
Selling and marketing (1) | 20,305 | 7,679 | 261 | F | 28,245 | ||||||||||||||
Product development (1) | 6,295 | 2,970 | - | 9,265 | |||||||||||||||
General and administrative (1) | 8,756 | 4,508 | - | 13,264 | |||||||||||||||
| Depreciation | 1,144 | 389 | - | 1,533 | |||||||||||||||
| Amortization of intangible assets | 5,029 | - | 2,602 | B | 7,631 | ||||||||||||||
| Total operating expenses | 41,529 | 15,546 | 2,863 | 59,938 | |||||||||||||||
Operating income (loss) | 12,663 | (499 | ) | (4,614 | ) | 7,550 | |||||||||||||
| Interest income (expense): | |||||||||||||||||||
| Interest income | 1,613 | 22 | (1,635 | ) | H | - | |||||||||||||
| Interest expense | (1,292 | ) | (104 | ) | (720 | ) | H | (2,116 | ) | ||||||||||
| Total interest income (expense) | 321 | (82 | ) | (2,355 | ) | (2,116 | ) | ||||||||||||
| Income before provision for (benefit from) income taxes | 12,984 | (581 | ) | (6,969 | ) | 5,434 | |||||||||||||
| Provision for (benefit from) income taxes | 5,811 | - | (3,379 | ) | G | 2,432 | |||||||||||||
Net income (loss) | $ | 7,173 | $ | (581 | ) | $ | (3,590 | ) | $ | 3,002 | |||||||||
| Net income (loss) per common share: | |||||||||||||||||||
| Basic | $ | (0.46 | ) | $ | (0.95 | ) | |||||||||||||
| Diluted | $ | (0.46 | ) | $ | (0.95 | ) | |||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||
| Basic | 7,824 | 360 | 8,184 | ||||||||||||||||
| Diluted | 7,824 | 360 | 8,184 | ||||||||||||||||
(1) Amounts include stock-based compensation expense as follows: | |||||||||||||||||||
| Cost of online revenue | 87 | - | - | 87 | |||||||||||||||
| Cost of events revenue | 31 | - | - | 31 | |||||||||||||||
| Cost of print revenue | 12 | - | - | 12 | |||||||||||||||
| Selling and marketing | 606 | - | 261 | 867 | |||||||||||||||
| Product development | 90 | - | - | 90 | |||||||||||||||
| General and administrative | 424 | 4 | - | 428 | |||||||||||||||
See accompanying notes to the unaudited pro forma financial information.
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Exhibit 99.3
TechTarget, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 2007
(In thousands, except per share amounts)
| Historical | Pro forma | Pro forma | |||||||||||||||||
| TechTarget | KnowledgeStorm | Adjustments | Combined | ||||||||||||||||
| Revenues: | |||||||||||||||||||
| Online | $ | 44,726 | $ | 13,304 | $ | - | $ | 58,030 | |||||||||||
| Events | 16,201 | - | - | 16,201 | |||||||||||||||
| 5,323 | - | - | 5,323 | ||||||||||||||||
| Total revenues | 66,250 | 13,304 | - | 79,554 | |||||||||||||||
| Cost of revenues: | |||||||||||||||||||
Online (1) | 11,194 | 2,246 | - | 13,440 | |||||||||||||||
Events (1) | 6,065 | - | - | 6,065 | |||||||||||||||
Print (1) | 2,990 | - | - | 2,990 | |||||||||||||||
| Total cost of revenues | 20,249 | 2,246 | - | 22,495 | |||||||||||||||
| Gross profit | 46,001 | 11,058 | - | 57,059 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||
Selling and marketing (1) | 19,811 | 6,106 | 195 | F | 26,112 | ||||||||||||||
Product development (1) | 5,021 | 2,319 | - | 7,340 | |||||||||||||||
General and administrative (1) | 8,917 | 3,167 | - | 12,084 | |||||||||||||||
| Depreciation | 1,095 | 271 | - | 1,366 | |||||||||||||||
| Amortization of intangible assets | 2,971 | 0 | 1,224 | B | 4,195 | ||||||||||||||
| Total operating expenses | 37,815 | 11,863 | 1,419 | 51,097 | |||||||||||||||
Operating income (loss) | 8,186 | (805 | ) | (1,419 | ) | 5,962 | |||||||||||||
| Interest income (expense): | |||||||||||||||||||
| Interest income | 2,058 | - | (2,058 | ) | H | - | |||||||||||||
| Interest expense | (851 | ) | (131 | ) | (540 | ) | H | (1,522 | ) | ||||||||||
| Total interest income (expense) | 1,207 | (131 | ) | (2,598 | ) | (1,522 | ) | ||||||||||||
| Income (loss) before provision for (benefit from) income taxes | 9,393 | (936 | ) | (4,017 | ) | 4,440 | |||||||||||||
| Provision for (benefit from) income taxes | 4,820 | - | (2,542 | ) | G | 2,278 | |||||||||||||
Net income (loss) | $ | 4,573 | $ | (936 | ) | $ | (1,476 | ) | $ | 2,161 | |||||||||
| Net income (loss) per common share: | |||||||||||||||||||
| Basic | $ | 0.03 | $ | (0.07 | ) | ||||||||||||||
| Diluted | $ | 0.02 | $ | (0.07 | ) | ||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||
| Basic | 24,282 | 375 | 24,657 | ||||||||||||||||
| Diluted | 27,185 | (2,528 | ) | 24,657 | |||||||||||||||
(1) Amounts include stock-based compensation expense as follows: | |||||||||||||||||||
| Cost of online revenue | 156 | - | - | 156 | |||||||||||||||
| Cost of events revenue | 43 | - | - | 43 | |||||||||||||||
| Cost of print revenue | 18 | - | - | 18 | |||||||||||||||
| Selling and marketing | 2,054 | - | 195 | 2,249 | |||||||||||||||
| Product development | 230 | - | - | 230 | |||||||||||||||
| General and administrative | 1,421 | 7 | - | 1,428 | |||||||||||||||
See accompanying notes to the unaudited pro forma financial information.
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Exhibit 99.3
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
1. Reclassifications
Certain balances for the historical statements of operations of KnowledgeStorm, Inc. for the year ended December 31, 2006 and the nine months ended September 30, 2007 have been reclassfied to conform to TechTarget's financial statement presentation.
2. Acquisition of KnowledgeStorm, Inc.
| (A) | The estimated purchase price of KnowledgeStorm, Inc. for purposes of preparing these unaudited pro forma combined financial statements is $57.9 million, including $51.7 million in cash, $6.0 million in common stock and $224,000 in transaction-related costs. The allocation of the purchase price and the purchase price accounting is based upon preliminary estimates of the assets and liabilities acquired on November 6, 2007 in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. It is anticipated that the final purchase price allocation will not differ materially from the preliminary allocations. |
The purchase price paid for KnowledgeStorm is as follows:
| Cash paid | $ | 51,730 | ||
| Common stock issued | 6,000 | |||
| Transaction costs | 224 | |||
| Total purchase price | $ | 57,954 |
The allocation of the purchase price is estimated as follows:
| Cash | $ | 2,813 | ||
| Accounts receivable | 1,235 | |||
| Prepaid expenses and other current assets | 132 | |||
| Property and equipment | 782 | |||
| Other assets | 39 | |||
| Accounts payable | (233 | ) | ||
| Accrued expenses and other current liabilities | (4,366 | ) | ||
| Deferred revenue | (843 | ) | ||
| Other liabilities | (257 | ) | ||
| Deferred tax asset - current | 2,455 | |||
| Deferred tax asset - non-current | (523 | ) | ||
| Identified intangible assets | 11,280 | |||
| Goodwill | 45,440 | |||
| Total purchase price | $ | 57,954 |
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Exhibit 99.3
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
2. Acquisition of KnowledgeStorm, Inc. - Continued
| (B) | To record pro forma amortization of intangible assets resulting from TechTarget’s acquisition of KnowledgeStorm from the beginning of the period presented over their estimated useful lives as follows: |
| Intangible Asset | Estimated Useful Life (years) | Amortization Expense Year Ended December 31, 2006 | Amortization Expense Nine Months Ended September 30, 2007 | |||||||||||||
| Customer contracts and related customer relationships | $ | 6,100 | 1 - 9 | $ | 1,513 | $ | 430 | |||||||||
| Trade name | 1,100 | 7 | 157 | 118 | ||||||||||||
| Member database and other intangible assets | 4,080 | 1 - 5 | 932 | 677 | ||||||||||||
| Total | $ | 11,280 | $ | 2,602 | $ | 1,224 | ||||||||||
| (C) | Adjustment to certain assets and liabilities reflect changes in the balances from September 30, 2007 to the date of acquisition, November 6, 2007. |
| Cash | $ | 2,596 | ||
| Accounts receivable | $ | (1,008 | ) | |
| Prepaid expenses and other current assets | $ | (27 | ) | |
| Property and equipment | $ | (24 | ) | |
| Accounts payable | $ | (98 | ) | |
| Accrued expenses and other current liabilities | $ | 2,889 | ||
| Deferred revenue | $ | (745 | ) | |
| Other liabilities | $ | (1 | ) | |
| Bank term loan | $ | (2,201 | ) |
The following table reflects the adjustments to record the difference between the preliminary fair value and the historical amount of KnowledgeStorm’s deferred revenue (see (E) below):
| KnowledgeStorm | Net | Preliminary | ||||||||||
| Historical | Adjustment | Fair Value | ||||||||||
| Deferred revenue | $ | 2,338 | $ | (1,495 | ) | $ | 843 | |||||
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Exhibit 99.3
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
2. Acquisition of KnowledgeStorm, Inc. - Continued
| (D) | Adjustment reflects the elimination of the historical stockholders’ deficit of KnowledgeStorm. |
| (E) | Adjustment of $1,751 for the year ended December 31, 2006 represents the net reduction in online revenue associated with the difference between the preliminary fair value and the historical amount of deferred revenue at the beginning of the period. The preliminary fair values represent amounts equivalent to the estimated cost plus an appropriate profit margin to perform services related to KnowledgeStorm’s advertising contracts based on the deferred revenue balances of KnowledgeStorm. |
| (F) | Adjustment reflects stock-based employee compensation expense for 45,000 restricted stock awards granted to two KnowledgeStorm employees as part of the acquisition. |
| (G) | Adjustments reflect the effect of the acquisition on the provision for income taxes as if TechTarget’s effective tax rate of 44.8% for the year ended December 31, 2006 and 51.3% for the nine months ended September 30, 2007 were applied to the pro forma combined pre-tax income. |
| (H) | Adjustment to record interest expense on additional bank term loan borrowings that would have been needed to complete the acquisition on January 1, 2006 using an assumed average interest rate of 6.50% for the twelve months ended December 31, 2006 and the nine months ended September 30, 2007. Adjustment to eliminate interest income from TechTarget's statement of operations for cash used in the acquisition and not available for investment during the period. |
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