News Column

TECHTARGET INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

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 and elsewhere in this Quarterly Report on Form 10-Q, particularly under the heading "Risk Factors." Overview Background We are a leading provider of specialized online content and brand advertising that brings together buyers and sellers of corporate information technology ("IT") products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific purchases. In addition we offer a number of data analytics solutions that help our customers more efficiently target their sales efforts. IT professionals have become increasingly specialized, and rely on our network of over 150 websites, each of which focuses on a specific IT sector such as storage, security or networking, for key decision support information tailored to their specific areas of responsibility. We work with our advertising customers to develop customized marketing programs, often providing them with multiple offerings in order to target their desired audience of IT professionals more effectively. Our service offerings address the lead generation, project opportunity information, and branding objectives of our advertising customers. In the six months ended June 30, 2014, lead generation and branding remained our primary sources of revenue, while project opportunity information, driven by growth in our IT Deal Alert™ products, contributed approximately 17% of online revenue as compared with a minimal amount for the same period in 2013. We enable IT professionals to navigate the complex and rapidly-changing IT landscape where purchasing decisions can have significant financial and operational consequences. Our content strategy includes three primary sources which IT professionals use to assist them in their pre-purchase research: independent content provided by our professionals, vendor-generated content provided by our customers and user-generated, or peer-to-peer, content. In addition to utilizing our independent content, registered members are able to conduct their pre-purchase research by accessing extensive vendor content across our network of websites. Our network of websites also allows users to seamlessly interact and contribute content, which is highly valued by IT professionals during their research process. We have a large and growing base of registered members, which totaled over 14.7 million as of June 30, 2014. The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the IT vendors' specific products. Since our founding in 1999, we have developed a broad customer base. During 2013, we delivered advertising campaigns for approximately 1,200 customers.



Executive Summary

Our revenue for the three months ended June 30, 2014 grew approximately 13%, to $26.1 million, when compared with the same period in 2013. This growth was primarily driven by two factors: continued growth of international revenue from our online products, and further adoption of our new IT Deal Alert™ offering. Both of these factors remain key areas of focus for our management team, and we believe they are both positioned for significant continued revenue growth. IT Deal Alert is a suite of services that leverages our proprietary audience activity data to enable us to identify purchase intent among our audience of IT professionals. At the same time, our international business is benefitting from the continued shift in adoption of online tools from traditional print sources by IT professionals in overseas markets.



During the second quarter of 2014, we made further progress on our strategy to grow our business and increase the reach of our offerings by continuing to execute on our strategic plans for the roll-out of IT Deal Alert and the continued expansion of our direct international capabilities.

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Our key strategic initiatives include:

Product - IT Deal Alert revenues (including international IT Deal Alert revenue of $0.7 million which is also included in international revenues discussed below) were approximately $4.1 million in the quarter, up from approximately $0.5 million in the second quarter of 2013. In the second quarter of 2014 we had over 150 active customers utilizing our IT Deal Alert service; this is up from 125 customers in the first quarter of 2014. We continue to receive very positive feedback from customers on the service and expect IT Deal Alert to be a meaningful growth driver in the remainder of 2014 and into 2015. Geographic - During the quarter approximately 30% of our revenues were derived from international geo-targeted campaigns, where our target audience is outside North America. International geo-targeted revenue (which also includes international IT Deal Alert revenue of $0.7 million as discussed above) increased in excess of 20% in the three months ended June 30, 2014 as compared to the same period a year ago. We believe that our integrated product offering across regions continues to resonate with international marketers and is contributing to our successful results. We plan on continuing to invest in these capabilities as we seek opportunities to increase our global reach; we are now offering our Qualified Sales Opportunities in the UK, Europe, and APAC. Core online has stabilized and we believe the stabilization will continue.



Revenue growth rates for the three month period ended June 30, 2014 as compared to the same period in 2013 are as follows:

Core Online -7% International Geo-targeted Online > 20% * IT Deal Alert > 720% * Events -8% Total Online 16% Total Revenues 13% * International IT Deal Alert revenues, which were $0.7 million for the three months ended June 30, 2014, are included in calculating growth rates for both IT Deal Alert and International Online.



Business Trends

The following discussion highlights key trends affecting our business.

• Macro-economic Conditions and Industry Trends. Because most of our

customers are IT vendors, the success of our business is intrinsically

linked to the health, and subject to market conditions, of the IT

industry. In the three months ended June 30, 2014, we saw continued

uncertainty in the IT market. As a result, we have continued to see

evidence that some IT vendors' North American advertising budgets remained

at their previously reduced level, which has caused our revenue to

stabilize in North America. As a result, while we will continue to invest

in growth areas, management will carefully control discretionary spending

such as travel and entertainment, and the filling of new and replacement

positions, in an effort to maintain profit margins and cash flow. • Customer Segments. In the three months ended June 30, 2014, our year-over-year revenue from our top 12 global customers increased by approximately 30%, our mid-sized customers (our next largest 100 customers) increased by approximately 8% and our smaller customers

increased by approximately 17%. Even though all three segments showed year-over-year growth, all three segments continued to report a



challenging environment. This translated into our customers remaining

cautious with their marketing expenditures.

Sources of Revenues

We sell advertising programs to IT vendors targeting a specific audience within a particular IT sector or sub-sector. We maintain multiple points of contact with our customers to provide support throughout their organizations and their customers' IT sales cycles. As a result, our customers often run multiple advertising programs with us in order to target their desired audience of IT professionals more effectively. There are multiple factors that can impact our customers' advertising objectives and spending with us, including but not limited to, IT 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 services are generally delivered under short-term contracts that run for the length of a given advertising program, typically less than six months. In the three months ended June 30, 2014, lead generation and branding remained our primary sources of revenue, while project opportunity information, driven by growth in our IT Deal Alert products, contributed approximately 17% of revenue as compared with a minimal amount for the same period in 2013. We use both online and event offerings to provide IT vendors with numerous touch points to reach key IT decision makers and to provide IT professionals with highly specialized content across multiple forms of media. We are experienced in assisting advertisers to develop custom advertising programs that maximize branding and ROI. The following is a description of the services we offer: Online. Online revenue represented 90% and 88% of total revenues for the three months ended June 30, 2014 and 2013, respectively and 93% and 91% of total revenues for the six months ended June 30, 2014 and 2013, respectively. Our network of websites forms the core of our content platform. Our websites provide IT professionals with comprehensive decision support information tailored to their specific areas of responsibility and purchasing decisions. Through our websites, we offer a variety of online media offerings to connect IT vendors to IT professionals. Our lead generation offerings allow IT vendors to maximize ROI by capturing qualified sales leads from the distribution and promotion of content to our audience of IT professionals. All of our lead generation campaigns offer the Activity Intelligence Dashboard, a technology platform that gives our customers' marketers and sales representatives a real-time view of their prospects, which includes insights on the research activities of technology buying teams, including at an account level. Lead generation offerings may also include an 21



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additional service, TechTarget Re-Engage (formerly called Nurture & Qualify), which helps both technology marketers and their sales teams to identify highly active prospects, detect emerging projects, retarget interested buying teams, and accelerate engagement with specific accounts.



Our lead generation offerings may also include the syndication of the following:

• White Papers. White papers are technical documents created by IT vendors

to describe business or technical problems which are addressed by the

vendors' products or services. As part of a lead generation campaign, we

post white papers on our relevant websites and our users 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 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 users 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.

Our branding offerings provide IT vendors exposure to targeted audiences of IT professionals actively researching information related to their products and services and include display advertising (including banners) and custom offerings. Display advertising can be purchased on specific websites within our network and against specific technology segments. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.



Our other offerings include the following:

• IT Deal Alert. IT Deal Alert is a suite of services for advertisers that

leverages the detailed purchase intent data that we collect about end-user

IT organizations. Through proprietary scoring methodologies, we use this

data to help advertisers identify and prioritize accounts whose content

consumption around specific IT 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. • IT Deal Alert: Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects, including information on scope and purchase considerations.



• IT Deal Alert: Account Watch is an annual subscription service powered

by our Activity Intelligence™ platform which integrates with salesforce.com. The breadth and depth of our targeted content allows IT Deal Alert: Account Watch to identify active technology projects based on the activity of serious buyers in approximately 80 technology-specific segments.



• Custom Content Creation. In support of our advertisers' lead generation

programs, we will sometimes create white papers, case studies, webcasts,

videos or even entire microsites to our customers' specifications through

our Custom Media team. These customized content assets are then promoted

to our audience in the context of the advertisers' lead generation programs. Our custom offerings allow customers to have content or entire microsites created that focus on topics related to their marketing objectives and include promotion of these vehicles to our users, which includes IT professionals and buyers of IT products.



• Content Sponsorships. IT vendors, 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, advertisers get the benefit of association with independently created content as well as access to qualified sales leads that are researching the topic.



• List Rentals. We also offer IT vendors the ability to message registered

members on topics related to their interests by renting our e-mail and

postal lists of registered members, which is organized using specific

criteria such as company size, geography or job title. 22



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• Third Party Revenue Sharing Arrangements. We have revenue sharing

arrangements with certain third parties to allow for the licensing of our

online content, for the renting of our database of opted-in e-mail

subscribers and to allow advertising from customers of certain third

parties to be made available to our website visitors. In each of these

arrangements we are paid a share of the resulting revenue.

Events. Events revenue represented 10% and 12% of total revenues for the three months ended June 30, 2014 and 2013, respectively and 7% and 9% of total revenues for the six months ended June 30, 2014 and 2013, respectively. Most of our media groups operate revenue-generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day conferences, single-day seminars and custom events. Multi-day conferences provide independent content provided by our professionals to our attendees and allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees. We also hold single-day seminars on various topics in major cities. These seminars provide independent content provided by our professionals on key sub-topics in the sectors we serve, are free to qualified attendees, and offer multiple vendors the ability to interact with specific, targeted audiences actively focused on buying decisions. Our custom events differ from our seminars in that they are exclusively sponsored by a single IT vendor and the content is driven primarily by the sole sponsor.



Cost of Revenues, Operating Expenses and Other

Expenses consist of cost of online and event revenues, selling and marketing, product development, general and administrative, depreciation, amortization and net interest expenses. Personnel-related costs are a significant component of each of these expense categories except for depreciation and amortization related expenses. Cost of Online Revenue. Cost of online revenues consist 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 list rental offerings; stock-based compensation expenses; facility expenses and other related overhead. Cost of Events Revenue. Cost of events revenues consist primarily of: facility expenses, including food and beverages for the event attendees as well as office space; salaries and related personnel costs; travel-related expenses; event speaker expenses; stock-based compensation 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 related overhead. Sales commissions are recorded as expense when earned by the employee, based on recorded revenue.

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. Depreciation expense consists of the depreciation of our property and equipment. Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives, ranging from two to ten years. Amortization of Intangible Assets. 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 three to ten years, using methods that are expected to reflect the estimated pattern of economic use.



Interest Income (Expense), Net. Interest income (expense), net consists primarily of interest income earned on cash, cash equivalents and short and long-term investments less any interest expense incurred. We historically have invested our cash in money market accounts, municipal bonds and government agency bonds.

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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. 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 revenue, 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 many cases, we could reasonably have used different accounting policies and estimates. 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.



We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements. See the notes to our consolidated financial statements for information about these critical accounting policies as well as a description of our other accounting policies.

Revenue Recognition

We generate substantially all of our revenue from the sale of targeted advertising campaigns which we deliver via our network of websites and events. In all cases, we recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The majority of our online media sales involve multiple product offerings. Although each of our online media offerings can be sold separately, most of our online media sales involve multiple online offerings. Because objective evidence of fair value does not exist for all elements in our bundled product offerings, we use a best estimate of selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of fair value. We establish best estimates considering multiple factors including, but not limited to, class of client, size of transaction, available media inventory, pricing strategies and market conditions. We believe the use of the best estimate of selling price allows revenue recognition in a manner consistent with the underlying economics of the transaction. We apply a relative selling price method to allocate arrangement consideration at the inception of the arrangement to each deliverable in a multiple element arrangement. Revenue is then recognized as delivery occurs. We evaluate all deliverables of an arrangement at inception and each time an item is delivered, to determine whether they represent separate units of accounting. Based on this evaluation, the arrangement consideration is measured and allocated to each of these elements. Online Media. Lead generation campaigns all offer the Activity Intelligence Dashboard. For duration-based campaigns, revenue is recognized ratably over the duration of the campaigns, which is typically less than six months. Lead generation offerings may also include an additional service, TechTarget Re-Engage (formerly called Nurture & Qualify), in which case revenue is recognized ratably over the period of the campaign as a combined unit of accounting. As part of these offerings, we guarantee a minimum number of qualified leads to be delivered over the course of the advertising campaign. We determine the content necessary to achieve performance guarantees. Scheduled end dates of advertising campaigns sometimes need to be extended, pursuant to the terms of the arrangement, to satisfy lead guarantee obligations. We estimate a revenue reserve necessary to adjust revenue recognition for extended advertising campaigns. These estimates are based on our experience in managing and fulfilling these offerings. The customer has cancellation privileges which generally require advance notice by the customer and require proportional payment by the customer for the portion of the campaign period that has been provided. Additionally, we offer sales incentives to certain customers, primarily in the form of volume rebates, which are classified as a reduction of revenues and are calculated based on the terms of the specific customer's contract. We accrue for these sales incentives based on contractual terms and historical experience.



We recognize revenue from cost per lead advertising in the period during which the leads are delivered, which is typically less than six months.

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Revenue for other significant online media offerings is recognized as follows: • IT Deal Alert. This suite of products includes Qualified Sales



Opportunities and Account Watch. Qualified Sales Opportunities revenue is

recognized when the opportunity is delivered to the customer; Account

Watch revenue is recognized ratably over the duration of the service. • Custom Content Creation. Custom content revenue is recognized when the



creation is completed and delivered to the customer, with the exception of

microsites which are recognized over the period during which they are live.



• Content Sponsorships. Content sponsorship revenue is recognized ratably

over the period in which the related content vehicle is available on our

websites. • List Rentals. List rental revenue is recognized in the period in which delivery of the list is made to our customers. • Banners. Banner revenue is recognized in the period in which the banner

impressions, engagements or clicks occur.



• Third Party Revenue Sharing Arrangements. Revenue from third-party revenue

sharing arrangements is recognized on a net basis in the period in which

the services are performed. For certain third-party agreements where we

are the primary obligor, revenue is recognized on a gross basis in the period in which the services are performed.



Event Sponsorships. We recognize sponsorship revenue from events in the period in which the event occurs. The majority of our events are free to qualified attendees; however, certain events are based on a paid attendee model. We recognize revenue for paid attendee events upon completion of the event.

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

Long-Lived Assets

Our long-lived assets consist primarily of property and equipment, capitalized software, goodwill and other intangible assets. Goodwill and other intangible assets have arisen principally from our acquisitions. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets, other than goodwill, are amortized over their estimated useful lives, which we determine based on the consideration of several factors including the period of time the asset is expected to remain in service. Intangible assets are amortized over their estimated useful lives, which range from three to ten years, using methods of amortization that are expected to reflect the estimated pattern of economic use. Consistent with our determination that we have only one reporting segment, we have determined that there is only one reporting unit and test goodwill for impairment at the entity level. We evaluate the carrying value and remaining useful lives of long-lived assets, other than goodwill, whenever indicators of impairment are present. We evaluate the carrying value of goodwill annually using the two step process required by ASC 350, Intangibles - Goodwill and Other. The first step of the impairment test is to identify potential impairment by comparing the reporting unit's fair value with its net book value (or carrying amount), including goodwill. The fair value is estimated based on a market value approach. If the fair value of the reporting unit exceeds its carrying amount, the reporting unit's goodwill is not considered to be impaired and the second step of the impairment test is not performed. Whenever indicators of impairment are present, we would perform the second step and compare the implied fair value of the reporting unit's goodwill, as defined by ASC 350, to its carrying value to determine the amount of the impairment loss, if any. As of December 31, 2013, the date of our last annual goodwill impairment review, there were no indications of impairment based on our step one analysis, and our estimated fair value exceeded our carrying value by a significant margin. There were no indications of impairment in our goodwill or intangible assets at June 30, 2014.



Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts receivable, accounts payable and contingent consideration. Due to their short-term nature and liquidity, the carrying value of these instruments with the exception of contingent consideration approximates their estimated fair values. The fair value of contingent consideration was estimated using a discounted cash flow method. 25



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Allowance for Doubtful Accounts

We offset gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for doubtful accounts are recorded in general and administrative expense. If our historical collection experience does not reflect our future ability to collect outstanding accounts receivable, our future provision for doubtful accounts could be materially affected. To date, we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved.



The allowance for doubtful accounts was $1.0 million at June 30, 2014 and $0.9 million at December 31, 2013.

Stock-Based Compensation We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in our results of operations using the straight-line method over the vesting period of the award or using the accelerated method if the award is contingent upon performance goals. We use the Black-Scholes option pricing model to determine the fair value of stock option awards. As there was no public market for our common stock prior to our initial public offering in May 2007 and, as until recently, there has been limited historical information on the volatility of our common stock since the date of our initial public offering, we have historically determined the volatility for options granted based on an analysis of the historical volatility of our stock and reported data for a peer group of companies that issued options with substantially similar terms. Beginning in 2013, the expected volatility of options granted has been determined using a weighted average of the historical volatility of our stock for a period equal to the expected life of the option. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero.



Internal-Use Software and Website Development Costs

We capitalize costs of materials, consultants and compensation and related expenses of employees who devote time to the development of internal-use software and website applications and infrastructure involving developing software to operate our websites. However, we expense as incurred website development costs for new features and functionalities since it is not probable that they will result in additional functionality until they are both developed and tested with confirmation that they are more effective than the current set of features and functionalities on our websites. Our judgment is required in determining the point at which various projects enter the state at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in which we develop and test new features and functionalities related to our websites, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of website development costs we capitalize and amortize in future periods would be impacted. We review capitalized internal-use software and website development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We would recognize an impairment loss only if the carrying amount of the asset is not recoverable and exceeds its fair value. We capitalized internal-use software and website development costs of $0.7 million and $1.0 million for the three months ended June 30, 2014 and 2013, respectively, and $1.7 million and $2.0 million for the six months ended June 30, 2014 and 2013, respectively.



Income Taxes

We are subject to income taxes in both the United States 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.

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Our deferred tax assets are comprised primarily of book to tax differences on stock-based compensation, timing of deductions for deferred rent and accrued expenses, and net operating loss ("NOL") carryforwards. As of December 31, 2013, we had state NOL carryforwards of approximately $25.9 million, which may be used to offset future taxable income. The NOL carryforwards expire through 2034. We also had foreign NOL carryforwards of $0.9 million, which may be used to offset future taxable income in foreign jurisdictions until they expire, through 2018.



Net Income (Loss) Per Share

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



Results of Operations

The following table sets forth our results of operations for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 ($ in thousands) Revenues: Online $ 23,652 90 % $ 20,371 88 % $ 45,732 93 % $ 38,846 91 % Events 2,496 10 2,727 12 3,393 7 3,800 9 Total revenues 26,148 100 23,098 100 49,125 100 42,646 100 Cost of revenues: Online 6,149 24 6,138 27 12,239 25 12,066 28 Events 979 3 1,087 5 1,526 3 1,763 4 Total cost of revenues 7,128 27 7,225 31 13,765 28 13,829 32 Gross profit 19,020 73 15,873 69 35,360 72 28,817 68 Operating expenses: Selling and marketing 10,007 38 9,093 39 19,753 40 18,213 43 Product development 1,742 7 1,676 7 3,347 7 3,417 8 General and administrative 3,774 14 3,645 16 7,106 14 6,952 16 Depreciation 1,012 4 985 4 2,001 4 1,857 4 Amortization of intangible assets 454 2 548 2 905 2 1,282 3 Total operating expenses 16,989 65 15,947 69 33,112 67 31,721 74 Operating income (loss) 2,031 8 (74 ) * 2,248 5 (2,904 ) (7 ) Interest (expense), net (11 ) * (9 ) * (21 ) * (6 ) * Income (loss) before provision for (benefit from) income taxes 2,020 8 (83 ) * 2,227 5 (2,910 ) (7 ) Provision for (benefit from) income taxes 717 3 788 3 789 2 (497 ) (1 ) Net income (loss) $ 1,303 5 % $ (871 ) (4 )% $ 1,438 3 % $ (2,413 ) (6 )% * Not meaningful 27



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Comparison of Three Months Ended June 30, 2014 and 2013

Revenues Three Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) ($ in thousands) Revenues: Online $ 23,652$ 20,371$ 3,281 16 % Events 2,496 2,727 (231 ) (8 ) Total revenues $ 26,148$ 23,098$ 3,050 13 %



Online. The increase in online revenue was primarily attributable to a $3.6 million increase in revenues from new product offerings, primarily IT Deal Alert, and international growth.

Events. The decrease in events revenue is primarily due to a reduction in the number of conferences and seminars that we conducted.

Cost of Revenues and Gross Profit

Three Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) ($ in thousands) Cost of revenues: Online $ 6,149$ 6,138 $ 11 * % Events 979 1,087 (108 ) (10 ) Total cost of revenues $ 7,128$ 7,225$ (97 ) (1 )% Gross profit $ 19,020$ 15,873$ 3,147 20 % Gross profit percentage 73 % 69 %



Cost of Online Revenues. Cost of online revenues were flat year over year due to the relatively fixed cost base on our online products.

Cost of Events Revenues. The decrease in cost of events revenues was primarily due to decreases in variable direct and employee-related costs as a result of the decrease in the number of events that we conducted. Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for the second quarter of 2014 was 73% as compared to 69% in the second quarter of 2013. The increase in online gross profit was $3.3 million, primarily attributable to the increase in online revenue, offset in part by a decrease in events gross profit, primarily as a result of the lower events revenues. Because the majority of our costs are fixed, we expect our gross profit to fluctuate from period to period based on changes in the total revenues for the period. The relative contribution of online and events revenues to our total revenues will also cause fluctuation in our gross profit from period to period. 28



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Table of Contents Operating Expenses and Other Three Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) ($ in thousands) Operating expenses: Selling and marketing $ 10,007$ 9,093$ 914 10 % Product development 1,742 1,676 66 4 General and administrative 3,774 3,645 129 4 Depreciation 1,012 985 27 3 Amortization of intangible assets 454 548 (94 ) (17 ) Total operating expenses $ 16,989$ 15,947$ 1,042 7 % Interest (expense), net $ (11 )$ (9 ) $ (2 ) 22 % Provision for income taxes $ 717$ 788$ (71 ) (9 )% Selling and Marketing. Selling and marketing expenses increased for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 due to increased investment in product innovation as well as variable compensation-related expenses caused by the increase in revenues and increased costs due to international expansion. Product Development. The increase in product development expense was primarily caused by a reduction in the amount of these costs that were capitalized year over year, offset in part by reductions in compensation and allocated costs due to reduced headcount. General and Administrative. The increase in general and administrative expense for the three months ended June 30, 2014 was primarily due to fees related to a secondary public offering in the quarter, offset in part by favorable foreign currency exchange rates. Depreciation and Amortization of Intangible Assets. Depreciation expense was relatively flat quarter over quarter. The decrease in amortization of intangible assets expense was attributable to certain intangible assets becoming fully amortized during 2013. Interest Income, Net. The slight increase in interest expense, net, is due to the amortization of a discount on installment payments related to the purchase of LeMagIT in the fourth quarter of 2012. Provision for Income Taxes. Our effective income tax rate was 35.5% and 949.4% for the three months ended June 30, 2014 and 2013, respectively. The lower rate in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 is primarily due to differences in the mix of pre-tax income and non-deductible stock-based compensation. The effective income tax rate is based upon the estimated annual effective tax rate in compliance with ASC 740, Income Taxes, and other related guidance. We update the estimate of our annual effective tax rate at the end of each quarterly period. Our estimate takes into account estimations of annual pre-tax income, the mix of pre-tax income and interpretations of tax laws. The second quarter of 2014 income tax rate was based on projections for the year.



Comparison of Six Months Ended June 30, 2014 and 2013

Revenues Six Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) Revenues: ($ in thousands) Online $ 45,732$ 38,846$ 6,886 18 % Events 3,393 3,800 (407 ) (11 ) Total revenues $ 49,125$ 42,646$ 6,479 15 %



Online. The increase in online revenue was primarily attributable to a $7.0 million increase in revenues from new product offerings, primarily IT Deal Alert, and international growth.

Events. The decrease in events revenue is primarily due to a reduction in the number of custom events and conferences that we conducted.

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Cost of Revenues and Gross Profit

Six Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) ($ in thousands) Cost of revenues: Online $ 12,239$ 12,066$ 173 1 % Events 1,526 1,763 (237 ) (13 ) Total cost of revenues $ 13,765$ 13,829$ (64 ) * % Gross profit $ 35,360$ 28,817$ 6,543 23 % Gross profit percentage 72 % 68 %



Cost of Online Revenues. Cost of online revenues were relatively flat year over year due to the primarily fixed cost base on our online products.

Cost of Events Revenues. The decrease in cost of events revenues was primarily due to decreases in variable direct and employee-related costs as a result of the decrease in the number of events that we conducted. Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for the first half of 2014 was 72% as compared to 68% in the first half of 2013. The increase in online gross profit was $6.7 million, primarily attributable to the increase in online revenue, offset in part by a decrease in events gross profit, primarily as a result of the lower events revenues. Because the majority of our costs are fixed, we expect our gross profit to fluctuate from period to period based on changes in the total revenues for the period. The relative contribution of online and events revenues to our total revenues will also cause fluctuation in our gross profit from period to period. Operating Expenses and Other Six Months Ended June 30, Increase Percent 2014 2013 (Decrease) Change (Unaudited) ($ in thousands) Operating expenses: Selling and marketing $ 19,753$ 18,213$ 1,540 8 % Product development 3,347 3,417 (70 ) (2 ) General and administrative 7,106 6,952 154 2 Depreciation 2,001 1,857 144 8 Amortization of intangible assets 905 1,282 (377 ) (29 ) Total operating expenses $ 33,112$ 31,721$ 1,391 4 % Interest (expense), net $ (21 )$ (6 )$ (15 ) 250 %



Provision for (benefit from) income taxes $ 789$ (497 ) $

1,286 (259 )% Selling and Marketing. Selling and marketing expenses increased year over year, primarily due to increased investment in product innovation as well as variable compensation-related expenses caused by the increase in revenues and increased costs due to international expansion. Product Development. The decrease in product development expense was primarily caused by a reduction in compensation and allocated costs due to reduced headcount year over year, offset in part by a reduction in the amount of these costs that were capitalized year over year. General and Administrative. The increase in general and administrative expense for the six months ended June 30, 2014 was primarily due to fees related to a secondary public offering in the second quarter, offset in part by favorable foreign currency exchange rates. Depreciation and Amortization of Intangible Assets. The increase in depreciation expense is related to an increase in our fixed asset base, primarily as a result of our continued investment in internal-use software development costs and computer equipment. The decrease in amortization of intangible assets expense was attributable to certain intangible assets becoming fully amortized during 2013. 30



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Interest Income, Net. The increase in interest expense, net, is due to the amortization of a discount on installment payments related to the purchase of LeMagIT in the fourth quarter of 2012.

Provision for Income Taxes. Our effective income tax rate was 35.4% and 17.1% for the first half of 2014 and 2013, respectively. The higher rate in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is primarily due to differences in the mix of pre-tax income and non-deductible stock-based compensation. The effective income tax rate is based upon the estimated annual effective tax rate in compliance with ASC 740, Income Taxes, and other related guidance. We update the estimate of our annual effective tax rate at the end of each quarterly period. Our estimate takes into account estimations of annual pre-tax income, the mix of pre-tax income and interpretations of tax laws. The first half of 2014 income tax rate was based on projections for the year.



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 have their new product introductions, and the historical decrease in advertising and events activity in summer months. Events revenue may vary depending on which quarters we produce the event, which may vary when compared to previous periods. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of online revenues, selling and marketing, product development, and general and administrative expenses as a percentage of revenue in each calendar quarter during the year.



The majority of our expenses are personnel-related and include 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

At June 30, 2014, we had $50.7 million of working capital, and our cash and cash equivalents totaled $23.6 million. Our cash, cash equivalents and investments increased $8.2 million during the first half of fiscal 2014, primarily from cash generated by our operations and financing activities, primarily from option exercises, offset by our investing activity, primarily from purchases of property and equipment. We believe that our existing cash, cash equivalents, and investments, our cash flow from operating activities and available bank borrowings will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion internationally, future acquisitions we might undertake, and the expansion into complementary businesses. To the extent that our cash and cash equivalents, investments and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses. June 30, December 31, 2014 2013 (Unaudited) ($ in thousands)



Cash, cash equivalents and investments $ 41,925$ 33,772

Accounts receivable, net $ 23,661 $



22,116

Cash, Cash Equivalents and Investments

Our cash, cash equivalents and investments at June 30, 2014 were held for working capital purposes and were invested primarily in money market accounts, municipal bonds and government agency bonds. We do not enter into investments for trading or speculative purposes. 31



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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 of our service delivery and billing activity, cash collections, and 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 period end divided by total revenue for the applicable period, multiplied by the number of days in the applicable period. DSO was 82 days for the quarter ended June 30, 2014 and 86 days at December 31, 2013. The decrease in DSO is primarily due to the timing of payments from customers and mix of customers and products. Cash Flows Six Months Ended June 30, 2014 2013 (Unaudited) ($ in thousands)



Net cash provided by (used in) operating activities $ 8,238 $

(598 )

Net cash used in investing activities(1) $ (2,078 ) $



(2,608 )

Net cash provided by (used in) financing activities $ 2,216$ (10,280 )

(1) Cash used in investing activities is shown net of investment activity of

($0.1) million and ($11.3) million for the six months ended June 30, 2014 and

2013, respectively. Operating Activities Cash provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, the provision 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 first half of 2014 was $8.2 million compared to cash used in operating activities of $0.6 million in the first half of 2013. The increase in cash provided by operating activities was primarily due to net income of $1.4 million during the first six months of 2014 compared to a $2.4 million net loss during the first six months of 2013. The increase in cash provided by operating activities is also a result of changes in operating assets and liabilities of $1.3 million in the first six months of 2014 compared to $(4.0) million in the first six months of 2013. Significant components of the changes in assets and liabilities included an increase in accounts receivable of $1.8 million in 2014 compared to an increase of $3.9 million in 2013, offset in part by an increase of $2.8 million in deferred revenue during the first six months of 2014 compared to an increase of $3.6 million in the first six months of 2013, caused by the increased revenues year over year.



Investing Activities

Cash used in investing activities in the six months ended June 30, 2014, net of investment activity, was $2.2 million for the purchase of property and equipment made up primarily of website development costs, computer equipment and related software and internal-use development costs.



Equity Financing Activities

We received proceeds from the exercise of stock options in the amounts of $1.8 million and $0.9 million in the six months ended June 30, 2014 and 2013, respectively.

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On August 3, 2012, our Board of Directors authorized a $20 million stock repurchase program (the "Program"). We were authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares of common stock repurchased was determined based on an evaluation of market conditions and other factors. We elected to implement a Rule 10b5-1 trading plan to make such purchases, which permits shares of common stock to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The Program was terminated immediately prior to the commencement of a tender offer on September 25, 2013. During the six months ended June 30, 2013 we repurchased 2,456,539 shares of common stock for approximately $11.7 million pursuant to the Program. During the year ended December 31, 2013 we repurchased 2,610,279 shares of common stock for approximately $12.4 million pursuant to the Program. All repurchased shares were funded with cash on hand. Tender Offer OnSeptember 25, 2013, we commenced a tender offer to purchase up to 6.5 million shares of our common stock at a price of $5.00 per share. The tender offer expired on October 24, 2013. In accordance with applicable SEC regulations and the terms of the tender offer, we exercised the right to purchase additional shares of common stock and accepted for purchase 7,100,565 shares of our common stock for a total cost of $35.6 million, which includes approximately $0.1 million in fees and expenses. Pursuant to the terms of the tender offer, we purchased 2,250,000 shares of common stock from entities affiliated with Technology Crossover Ventures and 2,300,040 shares of common stock from entities affiliated with Polaris Venture Partners.



Secondary Offering

In May 2014, we completed a secondary public offering of 5,750,000 shares of common stock at a price of $6.25 per share. All of the shares sold in the secondary public offering were sold by selling shareholders and we did not receive any proceeds. We incurred fees of approximately $0.5 million related to legal, accounting, and other fees in connection with the secondary public offering, which is included in general and administrative expenses in the Statement of Operations and Comprehensive Income (Loss).



Stock Repurchase

On August 5, 2014, our Board of Directors authorized a $20 million stock repurchase program. We are authorized to repurchase our common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined based on an evaluation of market conditions and other factors. We may elect to implement a Rule 10b5-1 trading plan to make such purchases, which would permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time. The program will be funded with cash on hand.



Term Loan and Credit Facility Borrowings

In August 2006, we entered into a credit agreement (the "Credit Agreement") with a commercial bank, which included a $10.0 million term loan (the "Term Loan") and a $20.0 million revolving credit facility (the "Revolving Credit Facility"). The Credit Agreement was amended in August 2007, in December 2008, in December 2009 and again in August 2011. The amendment in 2009 reduced the Revolving Credit Facility to $5.0 million. We paid off the remaining balance of the Term Loan in December 2009. The amendment in August 2011 extended the term of the facility and adjusted certain other financial terms and covenants. The Revolving Credit Facility matures on August 31, 2016. Unless earlier payment is required by an event of default, all principal and unpaid interest will be due and payable on August 31, 2016. At our option, the Revolving Credit Facility bears interest at either the prime rate less 1.00% or the London Interbank Offered Rate ("LIBOR") plus the applicable LIBOR margin. The applicable LIBOR margin is based on the ratio of total funded debt to EBITDA for the preceding four fiscal quarters. As of June 30, 2014, the applicable LIBOR margin was 1.25%. We are also required to pay an unused line fee on the daily unused amount of our Revolving Credit Facility at a per annum rate based on the ratio of total funded debt to EBITDA for the preceding four fiscal quarters. As of June 30, 2014, unused availability under the Revolving Credit Facility totaled $4.0 million and the per annum unused line fee rate was 0.20%. As of June 30, 2014 and December 31, 2013 there were no amounts outstanding under the revolving loan portion of our Revolving Credit Facility. There was a $1.0 million standby letter of credit related to our corporate headquarters lease that is outstanding at June 30, 2014, bringing our available borrowings on the $5.0 million facility to $4.0 million. Borrowings under the Credit Agreement are collateralized by a security interest in substantially all of our assets. Covenants governing the Credit Agreement include the maintenance of certain financial ratios. As of June 30, 2014, we were in compliance with all covenants under the Credit Agreement. 33



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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 $2.1 million and $2.6 million for the six month periods ended June 30, 2014 and 2013. A majority of our capital expenditures in the first half of 2014 were internal-use development costs and, to a lesser extent, computer equipment and related software. We are not currently party to any purchase contracts related to future capital expenditures.



Contractual Obligations and Commitments

As of June 30, 2014, our principal commitments consist of obligations under leases for office space. The offices are leased under non-cancelable operating lease agreements that expire through 2023. The following table sets forth our commitments to settle contractual obligations in cash as of June 30, 2014: Payments Due By Period Less than More than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years (Unaudited) ($ in thousands) Operating leases $ 22,309$ 4,288$ 7,931$ 7,619$ 2,471 At June 30, 2014, we had an irrevocable standby letter of credit outstanding in the aggregate amount of $1.0 million. This letter of credit supports the lease we entered into in 2009 for our corporate headquarters. This letter of credit, subject to certain reductions, extends annually through February 28, 2020 unless notification of termination is received.



See Note 5 to the Consolidated Financial Statements for information regarding future payments related to the LeMagIT acquisition.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for recent accounting pronouncements that could have an effect on our consolidated financial statements.


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