TechTarget (TTGT) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-33472

TECHTARGET, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3483216
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
275 Grove Street Newton, Massachusetts	02466
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 431-9200

Former name, former address and formal fiscal year, if changed since last report: Not applicable

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	TTGT	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 31, 2020, the registrant had 28,098,707 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

Item		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	43
	Signatures	44

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

TechTarget, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

	September 30, 2020			December 31, 2019
Assets	(Unaudited)			(Unaudited)
Current assets:
Cash	$	57,408		$	52,487
Short-term investments		5,064			5,012
Accounts receivable, net of allowance for doubtful accounts of $1,893 and $1,899 respectively		24,380			27,102
Prepaid taxes		3,211			1,017
Prepaid expenses and other current assets		1,706			1,813
Total current assets		91,769			87,431
Property and equipment, net		13,088			12,371
Goodwill		97,174			93,639
Intangible assets, net		3,369			710
Operating lease assets with right-of-use		24,779			26,385
Deferred tax assets		127			136
Other assets		901			936
Total assets	$	231,207		$	221,608
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,624		$	2,036
Current operating lease liability		2,829			2,571
Current portion of term loan		1,706			1,241
Accrued expenses and other current liabilities		4,058			2,476
Accrued compensation expenses		1,298			3,679
Income taxes payable		—			65
Contract liabilities		6,701			4,335
Total current liabilities		18,216			16,403
Long-term portion of term loan		21,066			22,473
Non-current operating lease liability		26,047			28,170
Deferred tax liabilities		1,757			1,611
Other liabilities		1,865			—
Total liabilities		68,951			68,657
Leases and contingencies (see Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued or outstanding		—			—
Common stock, $0.001 par value; 100,000,000 shares authorized; 55,608,094 and 54,903,824 shares issued, respectively; 28,098,707 and 28,142,519 shares outstanding, respectively		56			55
Treasury stock, at cost; 27,509,387 and 26,761,305 shares, respectively		(199,796	)		(184,972	)
Additional paid-in capital		327,899			317,675
Accumulated other comprehensive loss		(177	)		(319	)
Retained earnings		34,274			20,512
Total stockholders’ equity		162,256			152,951
Total liabilities and stockholders’ equity	$	231,207		$	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 Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	36,244		$	33,809		$	102,456		$	98,067
Cost of revenues(1)		9,212			8,047			26,148			23,011
Gross profit		27,032			25,762			76,308			75,056
Operating expenses:
Selling and marketing(1)		13,792			12,454			39,311			38,877
Product development(1)		1,961			2,085			5,839			6,073
General and administrative(1)		3,355			3,107			9,976			9,252
Depreciation and amortization, excluding depreciation of $274, $94, $666, and $163, respectively, included in cost of revenues		1,452			1,205			4,250			3,481
Total operating expenses		20,560			18,851			59,376			57,683
Operating income		6,472			6,911			16,932			17,373
Interest and other income (expense), net		91			(409	)		(388	)		(798	)
Income before provision for income taxes		6,563			6,502			16,544			16,575
(Benefit) Provision for income taxes		(219	)		1,151			2,782			3,783
Net income	$	6,782		$	5,351		$	13,762		$	12,792
Other comprehensive income (loss), net of tax:
Unrealized income (loss)  on investments (net of tax provision of $3, $0, $(10), and $0, respectively)	$	12		$	—		$	(36	)	$	—
Foreign currency translation gain (loss)		210			(235	)		178			(252	)
Other comprehensive income (loss)		222			(235	)		142			(252	)
Comprehensive income	$	7,004		$	5,116		$	13,904		$	12,540
Net income per common share:
Basic	$	0.24		$	0.19		$	0.50		$	0.46
Diluted	$	0.24		$	0.19		$	0.48		$	0.45
Weighted average common shares outstanding:
Basic		27,781			27,910			27,773			27,785
Diluted		28,473			28,370			28,412			28,253

(1) Amounts include stock-based compensation expense as follows:

Cost of revenues	$	121	$	64	$	260	$	144
Selling and marketing		2,849		1,911		7,155		6,567
Product development		117		106		438		292
General and administrative		1,236		849		3,191		2,151

See accompanying Notes to Consolidated Financial Statements.

4

TechTarget, Inc.

Consolidated Statements of Stockholders’ Equity

For the three and nine months ended September 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 Income (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
Issuance of common stock from restricted stock awards		561,921		1		—		—			460			—			—		461
Impact of net settlements		11,092		—		11,092		—			(3,078	)		—			—		(3,078	)
Stock-based compensation expense		—		—		—		—			4,323			—			—		4,323
Comprehensive income:
Unrealized gain on investments		—		—		—		—			—			12			—		12
Unrealized gain on foreign currency exchange		—		—		—		—			—			210			—		210
Net income		—		—		—		—			—			—			6,782		6,782
Balance, September 30, 2020		55,608,094	$	56		27,509,387	$	(199,796	)	$	327,899		$	(177	)	$	34,274	$	162,256

(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 nine months ended September 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 Income (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
Comprehensive income:
Unrealized loss 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
Issuance of common stock from exercise of options		16,000		1		—		—			95			—			—		96
Issuance of common stock from restricted stock awards		333,414		—		—		—			—			—			—		—
Impact of net settlements		14,535		—		14,535		—			(1,751	)		—			—		(1,751	)
Stock-based compensation expense		—		—		—		—			2,930			—			—		2,930
Comprehensive income:
Unrealized loss on foreign currency exchange		—		—		—		—			—			(235	)		—		(235	)
Net income		—		—		—		—			—			—			5,351		5,351
Balance, September, 2019		54,666,417	$	55		26,664,930	$	(182,630	)	$	314,384		$	(467	)	$	16,429	$	147,771

See accompanying Notes to Consolidated Financial Statements.

6

TechTarget, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended
	September 30,
	2020			2019
	(Unaudited)
Operating activities:
Net income	$	13,762		$	12,792
Adjustments to reconcile net income to net cash provided by operating    activities:
Depreciation and amortization		4,916			3,644
Provision for bad debt		303			237
Stock-based compensation		11,044			9,154
Amortization of debt issuance costs		7			7
Deferred tax provision		158			(412	)
Changes in operating assets and liabilities:
Accounts receivable		2,419			5,162
Prepaid expenses and other current assets		(3,094	)		152
Other assets		30			(58	)
Accounts payable		(412	)		139
Income taxes payable		953			550
Accrued expenses and other current liabilities		(190	)		(63	)
Operating lease right-of-use assets and liabilities, net		(263	)		(237	)
Accrued compensation expenses		(516	)		(452	)
Contract liabilities		2,366			(623	)
Other liabilities		1,865			1
Net cash provided by operating activities		33,348			29,993
Investing activities:
Purchases of property and equipment, and other capitalized assets		(4,943	)		(4,771	)
Purchases of investments and maturities of investments		(96	)		500
Acquisitions of businesses, net		(5,015	)		—
Net cash used in investing activities		(10,054	)		(4,271	)
Financing activities:
Tax withholdings related to net share settlements		(3,146	)		(2,619	)
Purchase of treasury shares and related costs		(14,824	)		(4,725	)
Proceeds from exercise of stock options		460			119
Term loan principal payment		(938	)		(938	)
Debt issuance costs		(11	)		—
Net cash used in financing activities		(18,459	)		(8,163	)
Effect of exchange rate changes on cash		86			(92	)
Net increase in cash		4,921			17,467
Cash at beginning of period		52,487			34,673
Cash at end of period	$	57,408		$	52,140
Supplemental disclosure of cash flow information:
Cash paid for taxes, net	$	4,906		$	3,512

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 September 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 Accounting Standard Update (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.

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In August 2018, the FASB issued ASU 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 ASU 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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
North America	$	21,663	$	22,813	$	62,518	$	66,444
International		14,581		10,996		39,938		31,623
Total	$	36,244	$	33,809	$	102,456	$	98,067

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 $2.5 million and $2.4 million at September 30, 2020, and December 31, 2019, respectively.

	Contract Liabilities
Year-to-Date Activity
Balance at December 31, 2019	$	4,335
Deferral of revenue		2,177
Recognition of previously unearned revenue		(1,964	)
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
Deferral of revenue		3,095
Recognition of previously unearned revenue		(1,445	)
Balance at September 30, 2020	$	6,701

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

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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 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 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 September 30, 2020
	September 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)	$	5,064	$	—	$	5,064	$	—
Total assets	$	5,064	$	—	$	5,064	$	—
Liabilities:
Contingent consideration - current (2)	$	820	$	—	$	—	$	820
Contingent consideration - non-current (2)		454		—		—		454
Total liabilities	$	1,274	$	—	$	—	$	1,274

			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	$	—

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(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.

5. Cash and Investments

Cash is carried at cost, which approximates fair market value. As of September 30, 2020 and December 31, 2019 cash consisted of $57.4 million and $52.5 million respectively.

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 $3 thousand as of September 30, 2020. There were 0 realized gains or losses as of December 31, 2019. 

Short-term investments consisted of the following:

	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Short-term investments:
Bond funds	$	5,110	$	—	$	(46	)	$	5,064
Total short-term investments	$	5,110	$	—	$	(46	)	$	5,064

	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:

			September 30, 2020
	Estimated Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net
Customer, affiliate and advertiser relationships	5-17		$	8,717	$	(6,419	)	$	2,298
Developed websites, technology and patents		10		2,061		(1,157	)		904
Trademark, trade name and domain name	5-8			1,821		(1,783	)		38
Proprietary user information database and internet traffic		5		1,117		(1,117	)		—
Non-Compete agreement		3		170		(41	)		129
Total intangible assets			$	13,886	$	(10,517	)	$	3,369

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			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 4.9 years. Amortization expense was $0.3 million and $0.1 million for the  nine months ended September 30, 2020 and 2019, respectively. 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 0t write off any fully amortized intangible assets in the first nine months of 2020.  

The Company expects amortization expense of intangible assets to be as follows:

Years Ending December 31:	Amortization Expense
2020 (October 1 – December 31)	$	112
2021		468
2022		498
2023		329
2024		318
Thereafter		1,644
Total	$	3,369

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 0t have any intangible assets other than goodwill with indefinite lives as of September 30, 2020 or December 31, 2019. There were no indications of impairment as of September 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

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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 Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Numerator:
Net income	$	6,782	$	5,351	$	13,762	$	12,792
Denominator:
Basic:
Weighted average shares of common stock and vested, undelivered restricted stock units outstanding		27,781,080		27,910,030		27,772,509		27,785,024
Diluted:
Weighted average shares of common stock and vested, undelivered restricted stock units outstanding		27,781,080		27,910,030		27,772,509		27,785,024
Effect of potentially dilutive shares (1)		691,519		460,132		639,416		468,280
Total weighted average shares of common stock and vested, undelivered restricted stock units outstanding and potentially dilutive shares		28,472,599		28,370,162		28,411,925		28,253,304
Net Income Per Share:
Basic net income per share	$	0.24	$	0.19	$	0.50	$	0.46
Diluted net income per share	$	0.24	$	0.19	$	0.48	$	0.45

(1) In calculating diluted net income per share, 22 thousand shares and 189 thousand shares related to outstanding stock options and unvested, undelivered restricted stock units were excluded for the three and nine months ended September 30, 2020, respectively, and 41 thousand and 700 thousand shares related to outstanding stock options and unvested, undelivered restricted stock units were excluded for the three and nine months ended September 30, 2019, respectively.

8. Term Loan Agreement and Line of Credit Agreement

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

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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 Bank 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. The Company had 0 amounts outstanding under the Line of Credit at September 30, 2020.

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 2021 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 September 30, 2020, operating lease assets were $24.8 million and operating lease liabilities were $28.9 million. The maturity of the Company’s operating lease liabilities as of September 30, 2020 are as follows:

	Minimum Lease
Years Ending December 31:	Payments
2020 (October 1 – December 31)	$	731
2021		4,055
2022		3,782
2023		3,696
2024		3,725
Thereafter		17,759
Total future minimum lease payments	$	33,748
Less imputed interest		4,872
Total operating lease liabilities	$	28,876

Included in the Consolidated Balance Sheet:
Current operating lease liabilities	$	2,829
Non-current operating lease liabilities		26,047
Total operating lease liabilities	$	28,876

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For the three and nine months ended September 30, 2020 and 2019, the total lease cost is comprised of the following amounts:

	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating lease expense	$	988	$	964	$	2,881	$	2,914
Short-term lease expense		13		22		67		64
Total lease expense	$	1,001	$	986	$	2,948	$	2,978

The following summarizes additional information related to operating leases:

	As of
	September 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 September 30, 2020 and December 31, 2019, the Company did 0t 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.

NaN 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 55,000 shares of common stock that remain subject to outstanding stock grants under the 2007 Plan as of September 30, 2020.

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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 are a total of 1,533,000 shares of common stock that remain subject to outstanding stock grants under the 2017 Plan as of September 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 0. 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 nine months ended September 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		(37,500	)	$	12.28			$	1,036
Forfeited		(5,000	)	$	29.64
Cancelled		—		$	—
Options outstanding at September 30, 2020		122,500		$	16.10		6.06	$	3,413
Options exercisable at September 30, 2020		102,500		$	13.45		5.35	$	3,127
Options vested or expected to vest at September 30, 2020		121,302		$	15.96		6.02	$	3,396

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 $1.0 million during the nine months ended September 30, 2020 The total amount of cash received from exercise of these options was approximately $0.5 million during the nine months ended September 30, 2020. The total intrinsic value of options exercised was $416 thousand during the nine months ended September 30, 2019. The total amount of cash received from exercise of these options was approximately $119 thousand during the nine months ended, September 30, 2019.

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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 nine months ended September 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		891,712		$	34.67
Vested		(709,842	)	$	19.96
Forfeited		(17,500	)	$	25.61
Nonvested outstanding at September 30, 2020		1,465,500		$	30.49	$	64,423

There were 709,842 restricted stock units with a total grant-date fair value of $14.2 million that vested during the nine months ended September 30, 2020. There were 17,500 shares forfeited with a total value of $0.5 million for the nine months ended September 30, 2020.  There were 687,046 restricted stock units with a total grant-date fair value of $10.8 million that vested during the nine months ended September 30, 2019.

As of, September 30, 2020 there was $41.6 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 2.2 years.

11. Stockholders’ Equity

Reserved Common Stock

As of, September 30, 2020 the Company has reserved 1,803,002 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. NaN amounts were repurchased under this plan during the second quarter of 2020 and 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. NaN amounts were repurchased under May 2020 Repurchase Program during the second or third quarter of 2020.

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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.

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 $2.8 million and $3.8 million for the nine months ended September 30, 2020 and September 30, 2019 respectively.

13. Segment Information

The Company views its operations and manages its business as 1 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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
North America	$	21,663	$	22,813	$	62,518	$	66,444
International		14,581		10,996		39,938		31,623
Total	$	36,244	$	33,809	$	102,456	$	98,067

(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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
United States	$	24,970	$	25,424	$	71,604	$	73,497
United Kingdom		4,433		3,445		12,756		9,885
Other international		6,841		4,940		18,096		14,685
Total	$	36,244	$	33,809	$	102,456	$	98,067

(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:

	September 30, 2020		December 31, 2019
United States	$	109,443	$	102,572
International		4,188		4,148
Total	$	113,631	$	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.

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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 $1.3 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.  

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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 in our Quarterly Report on Form 10-Q for the quarter ended June 30, 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 20.6 million and 19.9 million registered members – our “audiences” – as of September 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 September 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 1,500 to 1,600 customers.

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Executive Summary

COVID-19 Business Update

We finished the third quarter of 2020 in a strong financial position. As of September 30, 2020, our balance sheet included:

Cash and investments:	$62.5 million
Current portion debt:	$1.7 million
Long-term portion debt:	$21.0 million

Our remaining debt obligation for 2020, including required interest payments, is approximately $0.5 million.  We generated $33.3 million in cash from operations during the nine months ended September 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 third quarter we saw trends similar to those we saw at the end of the first quarter and during the second 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 customers 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 5% over last year.  We saw weakness from our Global 10 accounts, in particular their investments in their branding.

Our revenue growth in the quarter was driven in large part due to increases in our international revenue.  We believe the increase in international revenue was driven by three factors:

• We continue to benefit from the opt-in nature of our audience.

• We 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; the reallocation of certain of those marketing budgets from face to face events to online, intent-based offerings has created an opportunity for us.

We had a successful new release of Priority Engine, in September 2020, that significantly enhances the sales use case. The main improvements include proprietary first party purchase intent data at the individual prospect level, in addition to the account level data we had been previously providing and better integration with Salesforce.com. Initial results in the field are promising.

Even after the easing of governmental restrictions and the severity of the COVID-19 pandemic lessens, we could experience further fluctuations in our results of operations and cash flows resulting from the ongoing global impacts of the pandemic and our customers’ realignment of their marketing and sales budgets.

Our priorities remain 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 and third quarters 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.

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For the Nine Months Ended September 30, 2020 Financial Results

Our revenues for the nine months ended September 30, 2020 increased by $4.4 million, or 4%, to $102.5 million, compared with $98.1 million, during the same period in 2019. Priority Engine™ revenues increased 5% to more than $38.2 million, in the first nine months of 2020 compared with $36.3 million in the first nine 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 third quarter of 2020 increased 8%, compared to the third quarter of 2019. As 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 more than 25% for the nine months ended September 30, 2020, compared with the prior year period driven by the items noted above.

Gross profit percentage was 74% and 77% for the nine months ended September 30, 2020 and 2019, respectively. Gross profit increased by $1.3 million, mainly due to the increase in revenue compared to the same period a year ago.

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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 September 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 to 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 September 30, 2020 and 2019.

• 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. Additionally, we will be focusing on extending the market reach of our purchase intent data.

• Customer Demographics. In the three months ended September 30, 2020, revenues from our legacy global customers decreased approximately 15% compared to the same period 2019. Revenues from our largest 100 customers, excluding the legacy global customers described above increased by approximately 17% compared to the same period in 2019. Revenues attributable to remaining customers, which tend to be venture capital-backed start-ups that primarily operate in North America, increased by approximately 11% over the prior year period.

• Geographic. During the three months ended, September 30, 2020 approximately 40% of our revenues were derived from International campaigns.    

Revenues

Revenue changes for the three and nine month period ended, September 30, 2020 as compared to the same periods 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 September 30,				Percent Change	For the Nine Months Ended September 30,				Percent Change
	2020		2019			2020		2019
North America	$	21,663	$	22,813	-5%	$	62,518	$	66,444	-6%
International		14,581		10,996	33%		39,938		31,623	26%
Total	$	36,244	$	33,809	7%	$	102,456	$	98,067	4%

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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, September 30, 2020 approximately 35% 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.

• Sales Quality Leads. Sales Quality Leads is 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 85 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.

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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.

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

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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 3 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 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 nine months of 2020.

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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 September 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 September 30,										Nine Months Ended September 30,
	2020					2019					2020					2019
Revenues	$	36,244		100	%	$	33,809		100	%	$	102,456		100	%	$	98,067		100	%
Cost of revenues		9,212		25	%		8,047		24	%	$	26,148		26	%		23,011		23	%
Gross profit		27,032		75	%		25,762		76	%		76,308		74	%		75,056		77	%
Operating expenses:
Selling and marketing		13,792		38	%		12,454		37	%		39,311		38	%		38,877		40	%
Product development		1,961		5	%		2,085		6	%		5,839		6	%		6,073		6	%
General and administrative		3,355		9	%		3,107		9	%		9,976		10	%		9,252		9	%
Depreciation and amortization		1,452		4	%		1,205		4	%		4,250		4	%		3,481		4	%
Total operating expenses		20,560		57	%		18,851		56	%		59,376		58	%		57,683		59	%
Operating income		6,472		18	%		6,911		20	%		16,932		17	%		17,373		18	%
Interest and other expense, net		91		0	%		(409	)	-1	%		(388	)	0	%		(798	)	-1	%
Income before provision for income taxes		6,563		18	%		6,502		19	%		16,544		16	%		16,575		17	%
(Benefit) provision for income taxes		(219	)	-1	%		1,151		3	%		2,782		3	%		3,783		4	%
Net income	$	6,782		19	%	$	5,351		16	%	$	13,762		13	%	$	12,792		13	%

Comparison of Three Months Ended September 30, 2020 and September 30, 2019

Revenues

	Three Months Ended September 30,
	2020		2019		Increase		Percent Change
Revenues	$	36,244	$	33,809	$	2,435		7	%

The increase in revenues was due to customers increasing their spend for data driven marketing products. Priority Engine revenue grew 4% versus the prior year period to $13.2 million. 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

	Three Months Ended September 30,
	2020			2019			Increase		Percent Change
Cost of revenues	$	9,212		$	8,047		$	1,165		14	%
Gross profit	$	27,032		$	25,762		$	1,270		5	%
Gross profit percentage		75	%		76	%

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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 September 30, 2020 and 76% for the three months ended September 30, 2019. Gross profit increased by $1.3 million in the three months ended September 30, 2020 compared to the same period in 2019, primarily attributable to increased revenues compared to the same period a year ago, offset, in part, by an increase in outside consultant expenditures. 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 September 30,
	2020			2019			Increase (Decrease)			Percent Change
Operating expenses:
Selling and marketing	$	13,792		$	12,454		$	1,338			11	%
Product development		1,961			2,085			(124	)		-6	%
General and administrative		3,355			3,107			248			8	%
Depreciation and amortization		1,452			1,205			247			20	%
Total operating expenses	$	20,560		$	18,851		$	1,709			9	%
Interest and other expense, net	$	91		$	(409	)	$	500			122	%
(Benefit) provision for income taxes	$	(219	)	$	1,151		$	(1,370	)		-119	%

Selling and Marketing. Selling and marketing expenses increased for the three months ended September 30, 2020, as compared to the same period in 2019, primarily due to increases in stock-based compensation expense (accounting for 70% of the overall increase) and labor-related costs offset, in part, by a reduction of travel and entertainment expenses related to the COVID-19 circumstances pandemic.

Product Development. Product development expense increased for the three months ended September 30, 2020, as compared to the same period in 2019, due to an increase in labor and related costs which were capitalized.

General and Administrative. General and administrative expense decreased for the three months ended September 30, 2020, compared to the same period in 2019, due to an increase in stock compensation expenses offset in part by decreases in 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 September 30, 2020. Those intangible assets were not in service during the same period in 2019.

Interest and other expense, net.  Interest and other expense, net decreased mainly due to changes in foreign currency adjustments as compared to the prior period.

(Benefit) provision for income taxes.  Our effective income tax rate was a benefit of 3% and an expense of 18% for the three months ended September 30, 2020 and 2019, respectively. The decrease in the effective rate was primarily due to the impact of excess deductions from stock-based compensation in the third quarter of 2020, a discrete item.

Comparison of Nine Months Ended September 30, 2020 and September 30, 2019

Revenues

	Nine Months Ended September 30,
	2020		2019		Increase		Percent Change
Revenues	$	102,456	$	98,067	$	4,389		4	%

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The increase in revenues was due to customers increasing their spending for data driven marketing products.  Priority Engine™ revenues were up 5% in versus last year to $38.2 million the nine months ended September 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

	Nine Months Ended September 30,
	2020			2019			Increase		Percent Change
Cost of revenues	$	26,148		$	23,011		$	3,137		14	%
Gross profit	$	76,308		$	75,056		$	1,252		2	%
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 nine months of 2020 and 77% for the nine months ended September 30, 2019. Gross profit increased by $1.2 million in the nine months ended September 30, 2020 compared to the same period in 2019, primarily attributable increased revenue, offset, in part, by an increase in contracted services. 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   

	Nine Months Ended September 30,
	2020			2019			Increase (Decrease)			Percent Change
Operating expenses:
Selling and marketing	$	39,311		$	38,877		$	434			1	%
Product development		5,839			6,073			(234	)		-4	%
General and administrative		9,976			9,252			724			8	%
Depreciation and amortization		4,250			3,481			769			22	%
Total operating expenses	$	59,376		$	57,683		$	1,693			3	%
Interest and other expense, net	$	(388	)	$	(798	)	$	410			-51	%
Provision for income taxes	$	2,782		$	3,783		$	(1,001	)		-26	%

Selling and Marketing. Selling and marketing expenses increased for the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to increases in stock-based compensation expense and labor-related costs offset by a reduction of travel and entertainment expenses related to COVID-19 circumstances.

Product Development. Product development expense decreased for the nine months ended September 30, 2020, as compared to the same period in 2019, primarily due to additional amounts that were capitalized over the nine months ended September 30, 2019 offset in part by increases in contracted services.

General and Administrative. General and administrative expense increased for the nine months ended September 30, 2020, compared to the same period in 2019, due to an increase in stock compensation expenses offset in part by decreases in labor costs.

Depreciation and Amortization. Depreciation and amortization expense increased for the nine months ended September 30, 2020 when compared to the same period in 2019, due to increased amortization expense related to the Company’s acquisition of Data Science Central in February 2020.

Interest and other expense, net.  Interest and other expense, net decreased mainly due to changes in foreign currency adjustments as compared to the prior period.

Provision for income taxes.  Our effective income tax rate was 17% and 23% for the nine months ended September 30, 2020 and 2019, respectively.  The decrease in the effective rate was primarily due to the impact of excess deductions from stock-based compensation in the third quarter of 2020, a discrete item.

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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 September 30, 2020 totaled $62.5 million, a $5.0 million increase from December 31, 2019, primarily driven by our cash generated from operations offset in part 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. 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 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.

	September 30, 2020		December 31, 2019
Cash and investments	$	62,472	$	57,499
Accounts receivable, net	$	24,380	$	27,102

Cash and Investments

Our cash and investments, at September 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 62 days and 69 days at September 30, 2020 and December 31, 2019, respectively.

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Cash Flows

	Nine Months Ended September 30,
	2020			2019
Net cash provided by operating activities	$	33,348		$	29,993
Net cash used in investing activities	$	(10,054	)	$	(4,271	)
Net cash used in financing activities	$	(18,459	)	$	(8,163	)

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 nine months ended September 30, 2020 was $33.3 million compared to cash provided by operating activities of $30.0 million for the nine months ended September 30, 2019.

The increase in cash provided by operating activities was primarily the result of changes in working capital (driven mainly by 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 nine months ended September 30, 2020 was $10.1 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. In the first nine months of 2019 we used $4.2 million in investing activities primarily a result of purchase of property and equipment($4.7 million), primarily for internal-use software, and to a lesser extent, computer equipment offset by $0.5 million from the maturity of investments. We capitalized internal-use software and website development costs of $4.6 million and $3.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Financing Activities

In the first nine months of September 30, 2020, we used $18.5 million for financing activities, consisting primarily of $14.8 million, for the purchase of treasury shares, $0.9 million for the repayment of principal under the Loan Agreement and related costs and $3.1 million for tax withholdings related to net share settlements. In the first nine months of 2019 we used $8.2 million for financing activities, consisting primarily of $4.7 million for the purchase of treasury shares and related costs, $0.9 million for the repayment of principal on the Loan Agreement, and $2.6 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. During the nine months ended September 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

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requirements. The May 2020 Repurchase Program may be modified, suspended or discontinued at any time.  No amounts were repurchased under this program during the third quarter of 2020.

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 (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 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 September 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 Bank 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 $4.9 million and $4.8 million for the nine month periods ended September 30, 2020 and, 2019 respectively. A majority of our capital expenditures in the first nine 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 nine 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 $4.6 million and $3.9 million for the nine months ended September 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 quarters ended our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, 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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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

We currently have subsidiaries in the United Kingdom, Hong Kong, Australia, Singapore, Germany and France. Approximately 30% of our revenues for the nine months ended September 30, 2020 were derived from customers with billing addresses outside of the United States and our foreign exchange gains/losses were not significant. We currently believe our exposure to foreign currency exchange rate fluctuations, is financially immaterial and therefore have not entered into foreign currency hedging transactions. We continue to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in the future. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.

Interest Rate Risk

At September 30, 2020, we had cash and investments of, $62.5 million. The investments were in a bond fund. The cash and investments were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.

Our exposure to market risk also relates to interest expense on borrowings under the Loan Agreement. The Term Loan under the Loan Agreement bear interest at an annual rate of 1.375% plus the higher of the one-month U.S. LIBOR rate reported in the Wall Street Journal or two percent (2.00%) (see Note 8 to the consolidated financial statements). Borrowings 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%). At September 30, 2020, there was $22.8 million of aggregate principal outstanding under the Term Loan. No amounts were outstanding under the Line of Credit Agreement at September 30, 2020.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q for the period ended September 30, 2020, management, under the supervision of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), conducted an evaluation of our disclosure controls and procedures as of September 30, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control, that occurred during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened litigation against us that could have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

Our business is subject to a number of risks, including those identified in Item 1A – “Risk Factors” of our  Annual Report on Form 10-K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of, there have been no material changes to the risk factors disclosed in our  Annual Report on Form 10-K except to the risks relating to COVID-19 and EU-US Privacy Shield Framework, as amended below. We may disclose changes to any risk factors presented or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

We have been adversely impacted by the new coronavirus disease (COVID-19) pandemic and could experience additional adverse impacts that could be material to the Company’s business, operating results, financial condition and liquidity.

Our business was adversely impacted by the effects of the spread of the new coronavirus disease (COVID-19). We are witnessing the far-reaching impact that COVID-19 is having on our employees, customers, vendors, members, stockholders, and other stakeholders as well as the global economy and society at large. While we have responded proactively to address the effects of COVID-19 and to mitigate its potential impacts to our business, including through the elimination of all non-essential travel, transitioning our entire workforce to a remote work environment, and enhancing access to certain health and safety resources for our employees, beginning in March, 2020 we saw certain customers extend their normal sales cycles and budget shifts as some customers moved from long-term commitments to shorter-term marketing campaigns as they began to navigate through the pandemic.  To date, we have only experienced a handful of cancellations but we continue to stay close to our customers to ensure they are continuing to see ROI.  New customer acquisition has became harder as some potential customers have been less apt to spend on new products or services.

We believe our strong financial position provides us with the flexibility to weather this period of economic uncertainty and the opportunity to respond quickly to our customers with the content and services they expect. However, the restrictive measures local, state, and federal governments (including in the other countries in which we operate) have implemented to prevent the spread of COVID-19, including restrictions on the operation of non-essential businesses, shelter in place orders, travel restrictions, quarantines, school closures, and other community response and social distancing policies and guidelines, will continue to affect the way we and our customers conduct and operate our respective businesses.  We remain open and continue to provide the content and services that are important to our customers. Moreover, our dedicated employees continue to collaborate with each other and our customers and their sales and marketing teams, to deliver high quality, impactful campaigns. While we will continue to actively monitor government restrictions impacting our business and remain focused on business continuity, including reducing expenses and managing liquidity, given the fluid nature of COVID-19, the uncertainty of its duration location, extent and severity of resurgences, and the unknown effects of potential future government actions in response to COVID-19, we cannot estimate the duration or magnitude of its impact on the global economy, our business or our financial results.  

Changes in laws and standards relating to marketing, data collection and use, and the privacy of internet users could impact our ability to conduct our business and thereby decrease our marketing and advertising service revenues while imposing significant compliance costs on the Company.

We use e-mail as a significant means of communicating with our members. The laws and regulations governing the use of e-mail for marketing purposes continues to evolve, and the growth and development of the market for commerce over the internet may lead to the adoption of additional legislation and/or changes to existing laws. If new laws or regulations are adopted, or existing laws and regulations are interpreted and/or amended or modified to impose additional restrictions on our ability to send e-mail to our members or potential members, we may not be able to communicate with them in a cost-effective manner. In addition to legal restrictions on the use of e-mail, internet service providers and others typically attempt to block the transmission of unsolicited e-mail, commonly known as “spam.” If an internet service provider or software program identifies e-mail from us as “spam,” we could be

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placed on a restricted list that would block our e-mail to members or potential members who maintain e-mail accounts with these internet service providers or who use these software programs. If we are unable to communicate by e-mail with our members and potential members as a result of legislation, blockage or otherwise, our business, operating results and financial condition could be harmed.

We collect information from those who visit or register as members on our websites, co-branded sites, or for services, respond to surveys or, in some cases, view our content. Subject to each member’s permission (or right to decline, which we refer to as an “opt-out”, a practice that may differ across our various websites, depending on the applicable needs and requirements of different countries’ laws), we may use this information to inform our members of services that they have indicated may be of interest to them. We may also share this information with our customers for members who have elected to receive additional promotional materials and have expressly or implicitly granted us permission to share their information with third parties. We also collect information on our members based on their activity on our sites. The U.S. federal government and certain states have adopted or proposed limitations on the collection, distribution and use of personal information of internet users.

Although, to date, our efforts to comply with applicable federal and state laws and regulations have not hurt our business, additional, more burdensome laws or regulations, including more restrictive consumer privacy and data security laws, could be enacted or applied to us or our customers. Such laws or regulations could impair our ability to collect member information that helps us to provide more targeted content to our website visitors and members and detailed lead data to our customers, thereby impairing our ability to maintain and grow our audience and maximize revenue from our customers. Additionally, the FTC and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the presentation of website content, comply with certain standards for notice, choice, security and access. Courts may also adopt these developing standards. In many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities. A few states have also introduced legislation that, if enacted, would restrict or prohibit behavioral marketing and advertising within the state. In the absence of a federal law pre-empting their enforcement, such state legislation would likely have the practical effect of regulating behavioral marketing and advertising nationwide because of the difficulties behind implementing state-specific policies or sending targeted advertising to individuals based on their perceived commercial interests. In the event of additional legislation in this area, our ability to effectively target our website visitors and members may be limited. We believe that we are in compliance with applicable consumer protection laws, but a determination by a state or federal agency or court that any of our practices do not meet these laws and regulations could create liability to us, result in adverse publicity and affect negatively our businesses. New interpretations of these standards could also require us to incur additional costs and restrict our business operations.

The EU and its member states, California and Canada have regulations dealing with the collection and use of personal information obtained from their citizens. Regulations in these jurisdictions have focused on the collection, processing, transfer, use, disclosure and security of information that may be used to identify or that actually identifies an individual, such as a name, e-mail address or online identifier (such as an IP address in certain cases). These laws also provide consumers the right to access the information a company has collected on them, correct it, request that it be deleted, or to stop the sale of such information to third parties.

The General Data Protection Regulation (“GDPR”) became effective in May 2018 and was designed to, among other things, harmonize disparate data privacy laws found across Europe. GDPR implemented more rigorous principles relating to the data privacy and data protection, including, among other things, enhanced disclosure requirements regarding how personal information is obtained, used, and shared, limitations on the purpose and storage of personal information, mandatory data breach notification requirements and enhanced standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. Its application and scope are extensive and penalties for non-compliance are significant, including fines of up to 20 million Euros or 4% of total worldwide revenue. In the event the Company is deemed not in compliance with GDPR, or fails to maintain compliance, then the Company would be exposed to material damages, costs and/or fines if an EU regulator or EU resident commenced an action. Failure to comply or maintain compliance could cause considerable harm to us and our reputation (including requiring notification to customers, regulators, and/or members), cause a loss of confidence in our services, and deter current and potential customers from using our services.

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Further, the presidency of the council of the EU released a revised draft of the pending Proposal for Regulation on Privacy and Electronic Communications (“ePrivacy Regulation”) which will replace the ePrivacy Directive and is intended to align with the overall EU data privacy and protection framework, including GDPR. The ePrivacy Regulation was defeated by the council of the EU, but it is expected to be proposed again. The ePrivacy Regulation could disrupt the Company’s ability to use or transfer data or to market and sell its products and services, which could have a material adverse effect on our business, financial condition, and operating results.

Our customers may implement compliance measures that do not align with our services, which could limit the scope and delivery of services we are able to provide. Our customers may also require us to take on additional privacy and security obligations, causing us to incur potential disruption and expense related to our business processes. If our policies and practices, or those of our customers, are, or are perceived to be, insufficient or if our members, website visitors or customers have concerns regarding our data privacy and data protection practices, particularly with respect to GDPR or the pending ePrivacy Regulation, then we could be subject to enforcement actions or investigations by regulators or lawsuits by private parties, member engagement could decline and our business could be negatively impacted.

For certain data transfers and processing activities between the EU and the U.S., many companies previously relied on the Department of Commerce Safe Harbor Principles (“Safe Harbor”) and self-certification process in order to lawfully transfer and process the personal data of people in the EU to the U.S. in a manner that the EU deemed adequate to protect the security of such information. On October 6, 2015, the Court of Justice of the European Union (“CJEU”) declared that Safe Harbor was no longer valid. U.S. and EU lawmakers in February 2016 announced a replacement for Safe Harbor, called the EU-U.S. Privacy Shield Framework (“the EU Privacy Shield”). On July 12, 2016, the European Commission deemed the EU-US Privacy Shield adequate to enable data transfers of personal data from the EU to the U.S. Similarly, a Swiss-U.S. Privacy Shield (the “Swiss Privacy Shield”) was announced in January 2017, replacing the former Swiss-U.S. Safe Harbor, enabling data transfers of personal data from Switzerland to the U.S. The Company self-certified to the EU Privacy Shield and Swiss Privacy Shield most recently on March 6, 2020. On July 16, 2020, the CJEU invalidated the EU Privacy Shield. The CJEU upheld the adequacy of EU Standard Contractual Clauses (“SCCs”) issued by the European Commission for the transfer of personal data to data processors established outside of the EU, however, the court made clear that reliance on SCCs alone may not necessarily be sufficient in all circumstances and that their use must be assessed on a case-by-case basis taking into account the surveillance laws and right of individuals in the destination country. The CJEU’s decision takes effect immediately. The CJEU decision does not impact the Swiss Privacy Shield. The Company uses several mechanisms to transfer personal data from the EU to the U.S. (including having previously relied on the EU Privacy Shield) and are evaluating what additional mechanisms may be required to establish adequate safeguards for the further transfer of personal data. If supervisory authorities issue guidance on transfer mechanisms, including circumstances where the SCCs cannot be used and/or start taking enforcement action, we could suffer additional costs, complaints, and/or regulatory investigations or fines. Moreover, if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services and could adversely affect our financial results. 

In order to continue receiving personal data from the United Kingdom in reliance on the EU Privacy Shield following Brexit, the Company may be required to meet standards for cross-border transfer imposed by the UK itself.

Our digital properties collect and use data about our website visitors’ and members’ online behavior, and the revenue associated with this activity could be impacted by government regulation and enforcement, industry trends, self-regulation, technology changes, consumer behavior and attitude, and private action. We also use such information to call website visitors and members who have provided their telephone numbers to be enrolled as a member (for free). Our partners may then follow-up to try to sell products or services to such individuals. 

We also work with our partners to deliver targeted advertisements based on members and website visitors’ perceived commercial interests. Many of our users voluntarily provide us with contact and other information when they visit our websites. We may utlize data from third-party sources to augment our user profiles and marketing databases so we are better able to personalize content, enhance our analytical capabilities, better target our marketing programs, and better qualify leads for our partners. If changes in user sentiment regarding the sharing of information results in a significant number of visitors to our websites refusing to provide us with contact and other information, our ability to personalize content for our users and provide targeted marketing solutions for our partners would be impaired. If our users choose to opt-out of having their data used for behavioral targeting, it would be more difficult

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for us to offer targeted marketing programs for our partners.  If we are unable to acquire data from third-party sources for whatever reason, or if there is a marked increase in the cost of obtaining such data, our ability to personalize content and provide marketing solutions could be negatively impacted.

The use of such consumer data by online service providers and advertising networks is a topic of active interest among federal, state, and international regulatory bodies, as well as self-regulatory organizations, and the regulatory environment is unsettled.  Federal, state, and international laws and regulations govern the collection, use, retention, disclosure, sharing and security of data that we receive from and about our website visitors and members through cookies and other similar technologies. Our privacy policies and practices concerning the collection, use, and disclosure of user data are posted on our websites.

There are new and expanding proposals for laws and regulations regarding “Do Not Track” requirements that protect users’ right to choose whether or not to be tracked online. These proposals seek, among other things, to allow consumers to have greater control over the use of private information collected online, to forbid the collection or use of online information, to demand a business to comply with their choice to opt out of such collection or use, and to place limits upon the disclosure of information to third party websites. Any such laws and regulations could have a significant impact on the operation of our advertising and data businesses. U.S. regulatory agencies have also placed an increased focus on online privacy matters and, in particular, on online advertising activities that utilize cookies or other tracking tools. Consumer and industry groups have expressed concerns about online data collection and use by companies, which has resulted in the release of various industry self-regulatory codes of conduct and best practice guidelines that are binding for member companies engaged in online behavioral advertising (“OBA”) and similar activities. These codes of conduct and best practice guidelines govern, among other things, the ways in which companies can collect, use and disclose user information for OBA purposes, how companies must give notice of these practices, and what choices companies must provide to consumers regarding these practices.

We may be required or otherwise choose to adopt Do Not Track mechanisms, and we may be required to abide by certain self-regulatory principles promulgated by the Digital Advertising Alliance and others for OBA and similar activities, in which case our ability to use our existing tracking technologies, to collect and sell user behavioral data, and permit their use by other third parties could be impaired. This could cause our net revenues to decline and adversely affect our operating results.  

We believe that we are in material compliance with all laws, regulations and self-regulatory regimes that are applicable to us. However, as referenced above, these laws, regulations, and self-regulatory regimes may be modified, and new laws may be enacted in the future that may apply to us and affect our business. Further, data protection authorities may interpret existing laws in new ways. We may deploy new products and services from time to time, which may also require us to change our compliance practices. Any such developments (or developments stemming from enactment or modification of other laws) or the failure to anticipate accurately the application or interpretation of these laws could create liability for us, result in adverse publicity, increase our future compliance costs, make our products and services less attractive to our members and customers, or cause us to change or limit our business practices, and materially affect our business and operating results. Further, any failure on our part to comply with any relevant laws or regulations may subject us to significant civil, criminal or contractual liabilities.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(101) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Registered Securities

None.

(c)       Purchases of Equity Securities by the Issuer

None.

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Item 6. Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

Exhibit No.	Description of Exhibit
31.1*	Certification of Michael Cotoia, Chief Executive Officer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Daniel Noreck, Chief Financial Officer and Treasurer of TechTarget, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications of Michael Cotoia, Chief Executive Officer of TechTarget, Inc. and Daniel Noreck, Chief Financial Officer and Treasurer of TechTarget, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document* The instance document does not appear in the Interactive Data File because its XBRL tags are
	Embedded within the Inline XBRL document.
101.SCH	XBRL Inline Taxonomy Extension Schema Document*
101.CAL	XBRL Inline Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Inline Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Inline Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Inline Taxonomy Extension Presentation Linkbase Document*
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exbibit 101)

* Filled herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TECHTARGET, INC.
	(Registrant)
Date: November 4, 2020	By:	/s/ MICHAEL COTOIA
		Michael Cotoia, Chief Executive Officer and Director (Principal Executive Officer)
Date: November 4, 2020	By:	/s/ DANIEL NORECK
		Daniel Noreck, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)

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