Notes to Consolidated Financial Statements
Years Ended December 31, 2016, 2015 and 2014
(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
information technology (IT) products and services, and a leading provider of purchase-intent marketing and sales services for enterprise technology vendors. The Companys service offerings enable technology vendors to better
identify, reach and influence corporate IT decision makers actively researching specific IT purchases. The Company improves vendors 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 specific IT sector such as storage, security or
networking. IT professionals have become increasingly specialized, and they have come to rely on the Companys sector-specific websites for purchasing decision support. The Companys content platform enables IT professionals to navigate
the complex and rapidly changing IT 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 IT
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 users
respective job responsibilities and the marketing focus of the products being promoted by the Companys customers, the Company categorizes its content offerings to address the key market opportunities and audience extensions across a portfolio
of distinct media groups: Security; Networking; Storage; Data Center and Virtualization Technologies; CIO/IT Strategy; Business Applications and Analytics; Application Architecture and Development; Channel; and TechnologyGuide.com.
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.
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 (Beijing) Information Technology Consulting Co. Ltd. (TTGT Consulting), 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 Companys activities in the Asia-Pacific region. Additionally, through its wholly-owned subsidiaries, TTGT HK and TTGT Consulting, the Company effectively controls a variable interest entity
(VIE), Keji Wangtuo Information Technology Co., Ltd., (KWIT), which was incorporated under the laws of the Peoples Republic of China (PRC). 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. Bitpipe, Inc., previously a wholly-owned subsidiary, was merged into TechTarget, Inc. in the second quarter of 2016.
PRC laws and regulations prohibit or restrict foreign ownership of Internet-related services and advertising businesses. To comply with these
foreign ownership restrictions, the Company operates its websites and provides
70
online advertising services in the PRC through KWIT. The Company entered into certain exclusive agreements with KWIT and its shareholders through TTGT HK, which obligated TTGT HK to absorb all of
the risk of loss from KWITs activities and entitled TTGT HK to receive all of its residual returns. In addition, the Company entered into certain agreements with the authorized parties through TTGT HK, including Management and Consulting
Services, Voting Proxy, Equity Pledge and Option Agreements. TTGT HK assigned all of its rights and obligations to the newly formed wholly foreign-owned enterprise (WFOE), TTGT Consulting. TTGT Consulting is established and existing
under the laws of the PRC, and is wholly owned by TTGT HK.
Based on these contractual arrangements, the Company consolidates the
financial results of KWIT as required by Accounting Standards Codification (ASC) subtopic 810-10,
Consolidation: Overall
, because the Company holds all the variable interests of KWIT through TTGT Consulting, which is the primary
beneficiary of KWIT. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the aforementioned agreements, whereby the equity holders of KWIT assigned all of their
voting rights underlying their equity interest in KWIT to TTGT Consulting. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain substantially all
of the profits and absorb all of the expected losses of KWIT. All significant intercompany accounts and transactions between the Company, its subsidiaries, and KWIT have been eliminated in consolidation.
Reclassifications
Certain prior
year amounts related to deferred taxes have been reclassified for consistency with the current period presentation in connection with the adoption of new accounting pronouncements. These reclassifications are not material and had no effect on the
reported results of operations.
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, earnouts, self-insurance accruals and income taxes. 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 substantially all of its revenues from the sale of targeted marketing and advertising campaigns, which are delivered via its network of websites, data analytics solutions, and, historically, events. In all cases, revenue is recognized 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 the Companys online media sales involve multiple service and product offerings, which are described in more detail
below. Because neither vendor-specific objective evidence of fair value nor third-party evidence of fair value exists for all elements in the Companys bundled product offerings, the Company uses an estimated selling price which represents
managements best estimate of the stand-alone selling price for each deliverable in an arrangement. The Company establishes best estimates considering multiple factors including, but not limited to, class of client, size of transaction,
available media inventory, pricing strategies and market conditions. The Company believes the use of the best estimate of selling price allows revenue recognition in a manner consistent with the underlying economics of the transaction. The Company
uses the relative selling price method to allocate consideration at the inception of the arrangement to each deliverable in a multiple element arrangement. The relative selling price method allocates any discount in the arrangement proportionately
to each
71
deliverable on the basis of the deliverables best estimated selling price. Revenue is then recognized as delivery occurs. The Company typically offers standard 30 day cancellation terms
under its agreements.
The Company evaluates 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. Additionally, the Company offers 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 customers contract. The Company accrues for these sales incentives based on contractual terms and
historical experience.
Online Offerings
IT Deal Alert.
This suite of products and services includes IT Deal Alert: Qualified Sales Opportunities, which profiles
specific in-progress purchase projects, IT Deal Alert: Priority Engine, which is a subscription service powered by the Companys Activity Intelligence platform that integrates into salesforce.com and delivers information to allow
marketers and sales personnel to identify those accounts who are actively researching new technology purchases, IT Deal Alert: Deal Data, which is a customized solution aimed at sales intelligence and data scientist functions that makes the
Companys Activity Intelligence data directly consumable by the customers internal applications, and IT Deal Alert: TechTarget Research, which is a subscription product that sources proprietary information about purchase
transactions from IT professionals who are making and have recently completed these purchases. Qualified Sales Opportunities revenue is recognized when the Qualified Sales Opportunity is delivered to the Companys customer, Priority Engine
revenue is recognized ratably over the duration of the service, Deal Data revenue is recognized upon delivery of the data to the Companys customer, and Research revenue is recognized when the report is delivered.
Core Online.
The Companys core online offerings enable its 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.
Demand Solutions.
As part of its demand solutions campaign offerings, the Company may guarantee a minimum number of sales leads
to be delivered over the course of the campaign. The Company determines the content necessary to achieve performance guarantees. Scheduled end dates of campaigns sometimes need to be extended, pursuant to the terms of the arrangement, to satisfy
lead guarantees. The Company estimates a revenue reserve necessary to adjust revenue recognition for extended campaigns. These estimates are based on the Companys experience in managing and fulfilling these offerings. The customer generally
has cancellation privileges which normally require advance notice by the customer and require proportional payment by the customer for the portion of the campaign services provided by the Company. The Company recognizes revenue on duration-based
campaigns ratably over the duration of the campaign, which is usually less than six months and recognizes revenue on contracts where pricing is based on cost per lead during the period in which leads are delivered to its customers.
Brand Solutions.
Brand solutions consist mostly of banner revenue, which is recognized in the period in which the banner
impressions, engagements or clicks occur and microsite revenue, which is recognized over the period during which the microsites are live.
Custom Content Creation.
Custom content revenue is recognized when the creation is completed and delivered to the customer.
Other.
Includes list rental revenue, which is recognized in the period in which the Company delivers the customers content
to a list of the Companys registered members, and revenue from third-party revenue sharing arrangements, which is primarily recognized on a net basis in the period in which the services are performed
.
72
Events
Revenue from vendor-sponsored events, whether sponsored exclusively by a single vendor or in a multi-vendor sponsored event, is recognized upon
completion of the event in the period the event occurs. Historically, the majority of the Companys events were free to qualified attendees and certain events were based on a paid attendee model, but the Company announced on February 14,
2017 that it will be phasing out its events products. The Company recognizes 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. The Company excludes
from its deferred revenue and accounts receivable balances amounts for which it has billed in advance prior to the start of a campaign or the delivery of services.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts receivable, accounts payable,
long-term debt and contingent consideration. Due to their short-term nature and liquidity, the carrying value of these instruments, with the exception of contingent consideration and long-term debt, approximates their estimated fair values. See Note
3 for further information on the fair value of the Companys investments. The Company classifies all of its short-term and long-term investments as available-for-sale. Amounts outstanding under the Companys long-term debt are subject to
variable rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. The fair value of contingent consideration was estimated using a discounted cash flow
method described in Note 4.
Long-Lived Assets
,
Goodwill and Indefinite-lived Intangible Assets
Long-lived assets consist primarily of property and equipment, capitalized software, goodwill and other intangible assets. The Company reviews
long-lived assets, including property and equipment and finite intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would trigger an
impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset or an adverse action or a significant decrease in the market price. A specifically
identified intangible asset must be recorded as a separate asset from goodwill if either of the following two criteria is met: (1) the intangible asset acquired arises from contractual or other legal rights; or (2) the intangible asset is
separable. Accordingly, intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair value of net tangible and intangible assets acquired.
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment or more frequently if impairment
indicators arise. 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 of amortization that are expected to reflect the
estimated pattern of economic use, and are reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable. Consistent with the Companys determination that it has a single reporting segment, it
has been determined that there is a single reporting unit and goodwill is therefore tested for impairment at the entity level. The Company performs its annual test of impairment of goodwill as of December 31st of each year and whenever events
or changes in circumstances suggest that the carrying amount may not be recoverable using the two step process required by ASC 350,
IntangiblesGoodwill and Other
(ASC 350). The first step of the impairment test is to
identify potential impairment by comparing the reporting units 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 units goodwill is not considered to be impaired and the second step of the impairment test is not performed. Whenever indicators of impairment become present, the Company would perform the second step
and compare the implied fair value of the reporting units goodwill, as
73
defined by ASC 350, to its carrying value to determine the amount of the impairment loss, if any. As of December 31, 2016, there were no indications of impairment based on the step one
analysis, and the Companys estimated fair value exceeded its goodwill carrying value by a significant margin.
Based on the
aforementioned evaluation, the Company believes that, as of the balance sheet date presented, none of the Companys goodwill or other long-lived assets was impaired. The Company did not have any intangible assets with indefinite lives as of
December 31, 2016 or 2015.
Allowance for Doubtful Accounts
The Company reduces gross trade accounts receivable for an allowance for doubtful accounts. The allowance for doubtful accounts is the
Companys best estimate of the amount of probable credit losses in its existing accounts receivable. The allowance for doubtful accounts is reviewed 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.
Below is a summary of the changes in the Companys allowance for doubtful accounts for the years ended December 31, 2016, 2015 and
2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Year
|
|
|
Provision
|
|
|
Acquired in
Business
Combinations
|
|
|
Write-offs,
Net of
Recoveries
|
|
|
Balance at
End of
Year
|
|
Year ended December 31, 2014
|
|
$
|
913
|
|
|
$
|
708
|
|
|
|
|
|
|
$
|
(607
|
)
|
|
$
|
1,014
|
|
Year ended December 31, 2015
|
|
$
|
1,014
|
|
|
$
|
805
|
|
|
|
|
|
|
$
|
(104
|
)
|
|
$
|
1,715
|
|
Year ended December 31, 2016
|
|
$
|
1,715
|
|
|
$
|
894
|
|
|
|
|
|
|
$
|
(648
|
)
|
|
$
|
1,961
|
|
Property and Equipment and Other Capitalized Assets
Property and equipment and other capitalized assets are stated at cost. Property and equipment acquired through acquisitions of businesses are
initially recorded at fair value. Depreciation is calculated on the straight-line method based on the month the asset is placed in service over the following estimated useful lives:
|
|
|
|
|
Estimated Useful Life
|
Furniture and fixtures
|
|
5 years
|
Computer equipment and software
|
|
3 years
|
Internal-use software and website development costs
|
|
35 years
|
Leasehold improvements
|
|
Shorter of useful life or remaining duration of lease
|
Property and equipment and other capitalized assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Furniture and fixtures
|
|
$
|
988
|
|
|
$
|
794
|
|
Computer equipment and software
|
|
|
3,722
|
|
|
|
4,051
|
|
Leasehold improvements
|
|
|
2,050
|
|
|
|
1,510
|
|
Internal-use software and website development costs
|
|
|
23,782
|
|
|
|
20,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,542
|
|
|
|
27,289
|
|
Less: accumulated depreciation and amortization
|
|
|
(21,310
|
)
|
|
|
(18,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,232
|
|
|
$
|
8,922
|
|
|
|
|
|
|
|
|
|
|
74
Depreciation expense was $4.1 million, $4.0 million and $4.1 million for the years ended
December 31, 2016, 2015 and 2014, respectively. Repairs and maintenance charges that do not increase the useful life of the assets are charged to operations as incurred. The Company wrote off approximately $1.1 million, $1.3 million and $0.1
million of fully depreciated assets that were no longer in service during 2016, 2015 and 2014, respectively.
Depreciation expense is
classified as a component of operating expense in the Companys results of operations.
Internal-Use Software and Website Development Costs
The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain
costs relating to internal-use software. The Company begins to capitalize costs to develop software and website applications when planning stage efforts are successfully completed, management has authorized and committed project funding, and it is
probable that the project will be completed and the software will be used as intended. 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 four years. To the extent that the Company changes the manner in which it develops and tests new features and functionalities
related to its 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 it capitalizes and amortizes in future periods would be
impacted. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized internal-use software and website development costs are reviewed for recoverability whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. The Company capitalized internal-use software and website
development costs of $2.8 million, $2.9 million and $3.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents,
investments and accounts receivable. The Company maintains its cash and cash equivalents and investments principally in accredited financial institutions of high credit standing. The Company routinely assesses the credit worthiness of its customers.
The Company generally has not experienced any significant losses related to individual customers or groups of customers in any particular industry or area. The Company does not require collateral. Due to these factors, no additional credit risk
beyond amounts provided for collection losses is believed by management to be probable in the Companys accounts receivable.
No
single customer represented 10% or more of total accounts receivable at December 31, 2016 or 2015. No single customer accounted for 10% or more of total revenues in the years ended December 31, 2016, 2015 or 2014.
Income Taxes
The Companys
deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. A valuation allowance is established against net deferred tax
assets if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return using a more likely than not threshold as required by the provisions of ASC 740-10,
Accounting for Uncertainty in Income Taxes
(ASC 740).
75
The Company recognizes interest and penalties related to unrecognized tax benefits, if any, in
income tax expense.
Stock-Based Compensation
The Company has two stock-based employee compensation plans which are more fully described in Note 10. Stock-based compensation cost is
measured at the grant date based on the fair value of the award and is recognized in the Consolidated Statement of Operations and Comprehensive Income using the straight-line method over the vesting period of the award. The Company uses the
Black-Scholes option-pricing model to determine the fair value of stock option awards.
Comprehensive Income
Comprehensive income includes all changes in equity during a period, except those resulting from investments by stockholders and distributions
to stockholders. The Companys comprehensive income includes changes in the fair value of the Companys unrealized gains on available for sale securities and foreign currency translation adjustments.
There were no reclassifications out of accumulated other comprehensive income in the periods ended December 31, 2016, 2015 or 2014.
Foreign Currency
The functional
currency for each of the Companys subsidiaries is the local currency of the country in which it is incorporated. All assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date or
at a historical rate. Revenues and expenses are translated at average exchange rates. Translation gains or losses are recorded in stockholders equity as an element of accumulated other comprehensive loss.
Net Income Per Share
Basic
earnings per share is computed based on the weighted average number of common shares and vested restricted stock awards outstanding during the period. Because the holders of unvested restricted stock awards do not have nonforfeitable rights to
dividends or dividend equivalents, the Company does not consider these awards to be participating securities that should be included in its computation of earnings per share under the two-class method. Diluted earnings per share is computed using
the weighted average number of common shares and vested, undelivered restricted stock awards outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option and restricted stock award
programs using the treasury stock method. In calculating diluted earnings per share, 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 and restricted stock awards.
76
A reconciliation of the numerator and denominator used in the calculation of basic and diluted
net income per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,419
|
|
|
$
|
7,186
|
|
|
$
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock and vested, undelivered restricted stock awards
outstanding
|
|
|
29,953,798
|
|
|
|
32,963,185
|
|
|
|
33,010,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock and vested, undelivered restricted stock awards
outstanding
|
|
|
29,953,798
|
|
|
|
32,963,185
|
|
|
|
33,010,162
|
|
Effect of potentially dilutive shares
|
|
|
819,734
|
|
|
|
1,512,620
|
|
|
|
1,630,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares of common stock and vested, undelivered restricted stock awards
outstanding and potentially dilutive shares
|
|
|
30,773,532
|
|
|
|
34,475,805
|
|
|
|
34,640,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Net Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
2,419
|
|
|
$
|
7,186
|
|
|
$
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of stock outstanding
|
|
|
29,953,798
|
|
|
|
32,963,185
|
|
|
|
33,010,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
0.08
|
|
|
$
|
0.22
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
2,419
|
|
|
$
|
7,186
|
|
|
$
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of stock outstanding
|
|
|
30,773,532
|
|
|
|
34,475,805
|
|
|
|
34,640,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share(1)
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In calculating diluted earnings per share, 1.3 million, 1.1 million and 1.0 million shares related to outstanding stock options and unvested, undelivered restricted stock awards were excluded for the
years ended December 31, 2016, 2015 and 2014, respectively, because they were anti-dilutive.
|
Recent Accounting Pronouncements
Accounting Guidance Adopted in 2016
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes (ASU
2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the previous guidance, which required entities to separately present deferred
tax assets and deferred tax liabilities as current and
77
noncurrent in a classified balance sheet. The guidance in ASU 2015-17 is required for annual reporting periods beginning after December 15, 2016, including interim periods within the
reporting period. The Company early adopted the provisions of the new standard on January 1, 2016. Implementing the new pronouncement resulted in the Company retrospectively reclassifying approximately $2.3 million in current deferred tax
assets to noncurrent as of December 31, 2015.
Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which
supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date (ASU 2015-14). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting
periods within those periods) beginning after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted only as of annual reporting periods (including interim reporting periods within those reporting periods) beginning
after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which further clarifies the implementation guidance on principal versus agent considerations
contained in ASU 2014-09. In April and May 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, respectively, each of which provide further
implementation guidance for ASU 2014-09. The Company is currently in the process of assessing the adoption methodology, which allows the standard to be applied retrospectively to each prior period presented, or with the cumulative effect recognized
as of the date of initial application. The Company continues to progress in its evaluation of the impact of the adoption of the standard on other areas of its consolidated financial statements but has not yet determined whether the effect will be
material to either its reported revenue or its accounting for deferred commissions balances.
In February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. 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 for 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 is currently evaluating the impact that this guidance will have on its consolidated financial statements and disclosure.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting (ASU 2016-09). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted. The
adoption of this guidance will result in the Company recognizing tax benefits related to stock compensation deductions as a benefit to income tax expense when they are realized. The Company is currently evaluating the impact that this guidance will
have on its consolidated financial statements and disclosure.
78
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term and
long-term investments and contingent consideration. 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 Companys financial
assets and liabilities carried at fair value and measured on a recurring basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
December 31, 2016
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
4,301
|
|
|
$
|
4,301
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments(2)
|
|
|
10,988
|
|
|
|
|
|
|
|
10,988
|
|
|
|
|
|
Long-term investments(2)
|
|
|
7,801
|
|
|
|
|
|
|
|
7,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,090
|
|
|
$
|
4,301
|
|
|
$
|
18,789
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
December 31, 2015
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
122
|
|
|
$
|
122
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments(2)
|
|
|
10,646
|
|
|
|
|
|
|
|
10,646
|
|
|
|
|
|
Long-term investments(2)
|
|
|
9,262
|
|
|
|
|
|
|
|
9,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,030
|
|
|
$
|
122
|
|
|
$
|
19,908
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent considerationnon-current(3)
|
|
$
|
1,326
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,326
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in cash and cash equivalents on the accompanying consolidated balance sheets; valued at quoted market prices in active markets.
|
(2)
|
Short-term and long-term investments consist of municipal bonds, corporate bonds, U.S. Treasury securities and government agency bonds; their fair value is calculated using an interest rate yield curve for similar
instruments.
|
(3)
|
The Companys valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with the LeMagIT acquisition are described in Note 4. The contingent
consideration, net of a $0.4 million holdback, was paid in January 2016. The holdback was subsequently settled with the stockholders in October 2016.
|
79
The following table provides a roll-forward of the fair value of the contingent consideration categorized as
Level 3 for the year ended December 31, 2015. As noted, these amounts were settled in full in 2016:
|
|
|
|
|
|
|
Fair Value
|
|
Balance as of December 31, 2013
|
|
$
|
1,496
|
|
|
|
|
|
|
Currency translation impact on contingent liabilities
|
|
|
(204
|
)
|
Payments on contingent liabilities
|
|
|
(545
|
)
|
Amortization of discount on contingent liabilities
|
|
|
47
|
|
Remeasurement of contingent liabilities
|
|
|
320
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
1,114
|
|
|
|
|
|
|
Currency translation impact on contingent liabilities
|
|
|
(127
|
)
|
Amortization of discount on contingent liabilities
|
|
|
305
|
|
Remeasurement of contingent liabilities
|
|
|
34
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
1,326
|
|
|
|
|
|
|
4. Acquisition
LeMagIT
On
December 17, 2012, the Company purchased all of the outstanding shares of its French partner,
E-Magine
Médias SAS (LeMagIT), for approximately $2.2 million in cash plus a potential
future earnout valued at $0.7 million at the time of the acquisition. Approximately $1.2 million of the cash payment was made at closing, and the remainder was paid in two equal installments in 2013 and 2014. The earnout was subject to certain
revenue growth targets and the payment was adjusted each period based on actual results. In valuing the contingent consideration, it was determined that fair value adjustments were necessary to appropriately reflect the inherent risk and related
time value of money associated with these potential payments. Accordingly, a discount rate of 28% was used. The calculation of these fair values required the use of significant inputs that are not observable in the market and thus represented a
Level 3 fair value measurement as defined in ASC 820,
Fair Value Measurements and Disclosures
. The significant inputs in the Level 3 measurements not supported by market activity included estimated future revenues as well as the rates used to
discount them. The installment payments were recorded at present value using a discount rate of 10%.
The earnout payment of $1.3 million,
net of a $0.4 million holdback, was paid in January 2016. The portion of the payment that related to the fair value of the earnout as of the acquisition date, amounting to approximately $0.5 million, is reflected in financing activities in the
Companys Consolidated Statement of Cash Flows for the year ended December 31, 2016. The payment is reflected as an operating cash flow. The holdback was subsequently settled with the stockholders in October 2016.
5. Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Cash equivalents
are carried at cost, which approximates their fair market value. Cash and cash equivalents consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash
|
|
$
|
14,184
|
|
|
$
|
14,661
|
|
Money market funds
|
|
|
4,301
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
18,485
|
|
|
$
|
14,783
|
|
|
|
|
|
|
|
|
|
|
80
The Companys short-term and long-term investments are accounted for as available for sale
securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders equity, net of tax. The cumulative unrealized loss, net of
taxes, was $30, $19 and $20 as of December 31, 2016, 2015 and 2014, respectively. Realized gains and losses on the sale of these investments are determined using the specific identification method. There were no material realized gains or
losses in 2016, 2015 or 2014.
Short-term and long-term investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term and long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
1,998
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
1,997
|
|
Government agency bonds
|
|
|
5,012
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
$
|
5,011
|
|
Municipal bonds
|
|
|
9,817
|
|
|
|
|
|
|
|
(42
|
)
|
|
$
|
9,775
|
|
Corporate bonds
|
|
|
2,009
|
|
|
|
|
|
|
|
(3
|
)
|
|
$
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term and long-term investments
|
|
$
|
18,836
|
|
|
$
|
1
|
|
|
$
|
(48
|
)
|
|
$
|
18,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term and long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency bonds
|
|
$
|
7,615
|
|
|
$
|
|
|
|
$
|
(15
|
)
|
|
$
|
7,600
|
|
Municipal bonds
|
|
|
11,818
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
11,804
|
|
Corporate bonds
|
|
|
505
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term and long-term investments
|
|
$
|
19,938
|
|
|
$
|
|
|
|
$
|
(30
|
)
|
|
$
|
19,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had 21 debt securities in an unrealized loss position at December 31, 2016. All of these
securities have been in such a position for no more than six months. The unrealized loss on those securities was approximately $48 and the fair value was $13.8 million. At December 31, 2015, the Company had 16 debt securities in an
unrealized loss position, and the unrealized loss on those securities was approximately $30 and the fair value was $18.9 million at that date. The Company uses specific identification when reviewing these investments for impairment. Because the
Company does not intend to sell the investments that are in an unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their cost basis, the Company does not consider those
investments with an unrealized loss to be other-than-temporarily impaired at December 31, 2016.
Municipal, government agency, and
corporate bonds have contractual maturity dates that range from March 2017 to January 2019. All income generated from these investments is recorded as interest income.
6. Goodwill
The changes in the carrying
amount of goodwill for the years ended December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance as of beginning of year
|
|
$
|
93,701
|
|
|
$
|
93,979
|
|
Effect of exchange rate changes
|
|
|
(232
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
$
|
93,469
|
|
|
$
|
93,701
|
|
|
|
|
|
|
|
|
|
|
81
7. Intangible Assets
The following table summarizes the Companys intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Estimated
Useful Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer, affiliate and advertiser relationships
|
|
|
5-9
|
|
|
$
|
6,826
|
|
|
$
|
(6,807
|
)
|
|
$
|
19
|
|
Developed websites, technology and patents
|
|
|
10
|
|
|
|
1,178
|
|
|
|
(705
|
)
|
|
|
473
|
|
Trademark, trade name and domain name
|
|
|
5-8
|
|
|
|
1,749
|
|
|
|
(1,664
|
)
|
|
|
85
|
|
Proprietary user information database and Internet traffic
|
|
|
5
|
|
|
|
1,146
|
|
|
|
(1,122
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
10,899
|
|
|
$
|
(10,298
|
)
|
|
$
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
Estimated
Useful Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer, affiliate and advertiser relationships
|
|
|
5-9
|
|
|
$
|
6,996
|
|
|
$
|
(6,379
|
)
|
|
$
|
617
|
|
Developed websites, technology and patents
|
|
|
10
|
|
|
|
1,222
|
|
|
|
(603
|
)
|
|
|
619
|
|
Trademark, trade name and domain name
|
|
|
5-8
|
|
|
|
1,819
|
|
|
|
(1,685
|
)
|
|
|
134
|
|
Proprietary user information database and Internet traffic
|
|
|
5
|
|
|
|
1,232
|
|
|
|
(1,154
|
)
|
|
|
78
|
|
Non-compete agreements
|
|
|
3
|
|
|
|
76
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
11,345
|
|
|
$
|
(9,897
|
)
|
|
$
|
1,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The remaining amortization expense will be recognized over a weighted average period of approximately 3.27 years. Amortization expense was $0.8 million, $1.4
million and $1.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets and website traffic that the
Company considers to be in support of selling and marketing activities. The Company wrote off $0.1 million of fully amortized intangible assets in 2016. The Company did not write off any intangible assets in 2015.
The Company expects amortization expense of intangible assets to be as follows:
|
|
|
|
|
Years Ending December 31:
|
|
Amortization
Expense
|
|
2017
|
|
|
157
|
|
2018
|
|
|
97
|
|
2019
|
|
|
82
|
|
2020
|
|
|
69
|
|
2021
|
|
|
84
|
|
Thereafter
|
|
|
112
|
|
|
|
|
|
|
|
|
$
|
601
|
|
|
|
|
|
|
82
8. Term Loan Agreement and Credit Agreement
On May 9, 2016, the Company entered into a Senior Secured Credit Facilities Credit Agreement for a term loan (the Term Loan
Agreement). Under the Term Loan Agreement, the Company borrowed and received $50 million in aggregate principal amount pursuant to a five-year term loan (the Term Loan). The borrowings under the Term Loan Agreement are 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.
Borrowings under the Term Loan Agreement must be repaid quarterly in the following manner: 2.5% of the initial aggregate borrowings are due
and payable each quarter for the first loan year and 5.0% of the initial aggregate borrowings are due and payable each quarter during each subsequent loan year. At maturity in May 2021, any remaining amounts outstanding under the Term Loan Agreement
will be due and payable.
Installment payments on the principal by year and amounts included in the Companys Consolidated Balance
Sheet as of December 31, 2016 related to the Term Loan Agreement are as follows:
|
|
|
|
|
Years Ending December 31:
|
|
|
|
2017
|
|
|
6,250
|
|
2018
|
|
|
10,000
|
|
2019
|
|
|
10,000
|
|
2020
|
|
|
10,000
|
|
2021
|
|
|
2,500
|
|
|
|
|
|
|
Total principal on term loan
|
|
|
38,750
|
|
Unamortized debt issuance costs
|
|
|
(307
|
)
|
|
|
|
|
|
Carrying amount of term loan
|
|
|
38,443
|
|
Less: current portion of term loan, net of $93 in unamortized debt issuance costs
|
|
|
(6,157
|
)
|
|
|
|
|
|
Long-term portion of term loan, net of $214 in unamortized debt issuance costs
|
|
$
|
32,286
|
|
|
|
|
|
|
The Term Loan Agreement requires the Company to maintain compliance with certain covenants, including leverage
and fixed charge coverage ratio covenants. At December 31, 2016, the Company was in compliance with all covenants under the Term Loan Agreement.
At the Companys option, the Term Loan Agreement bears interest at either an annual rate of 1.50% plus the higher of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%, or the London Interbank Offered Rate (LIBOR) plus 2.50%. The applicable interest rate was 3.12% at December 31, 2016,
representing LIBOR plus the applicable margin of 2.50%. Interest expense under the Term Loan Agreement was $1.1 million in 2016, which includes non-cash interest expense of $60 related to the amortization of deferred issuance costs. During 2016, the
Company made principal payments totaling $11.3 million which included a $10.0 million pre-payment in excess of the contractual amounts due.
Borrowings under the Term Loan Agreement may be prepaid by the Company at its option without penalty and must be repaid upon the occurrence of
certain events, including certain events of default.
The Company paid a one-time upfront administration and arrangement fee on the
closing date. Thereafter, a non-refundable fee will be due and payable on each anniversary of the effective date of the Term Loan Agreement. Total debt issuance costs paid in relation to the Term Loan Agreement were approximately
$0.4 million. The costs were recorded as a direct deduction from the carrying amount of the Term Loan and amortized as interest expense over the life of the Term Loan Agreement on a straight-line basis, which approximates the effective interest
method.
83
The Company used a portion of the proceeds from the Term Loan to fund a tender offer (the
Tender Offer) to purchase up to 8.0 million of its shares of common stock, which commenced on May 10, 2016 and was concluded on June 8, 2016 (see Note 11). The Company intends to use the remaining proceeds to fund stock
repurchases pursuant to its Stock Repurchase Program (see Note 11), as well as for general corporate purposes.
As of December 31,
2015, the Company had a $5.0 million Revolving Credit Facility (the Prior Credit Agreement), which was a discretionary $5.0 million demand revolving line. There were no financial covenant requirements and no unused line fees under the
Prior Credit Agreement, and there were no outstanding balances under the Prior Credit Agreement at December 31, 2015. The Prior Credit Agreement was terminated concurrent with the establishment of the Term Loan Agreement.
9. Commitments and Contingencies
Operating Leases
The Company conducts its operations in leased office facilities under various noncancelable operating lease agreements that expire through
December 2021. In August 2009, the Company entered into an agreement to lease approximately 87,875 square feet of office space in Newton, Massachusetts (the Newton Lease). The Newton Lease commenced in February 2010 and has a term of ten
years. In November 2010, the Newton Lease was amended to include an additional 8,400 square feet of office space (the Amended Newton Lease). The Amended Newton Lease commenced in March 2011 and runs concurrently with the term of the
Newton Lease. The Company is receiving certain rent concessions over the life of the Newton Lease as well as the Amended Newton Lease. In July 2015, the Newton Lease was again amended to include an additional 14,203 square feet of office space (the
Second Amended Newton Lease). The Second Amended Newton Lease commenced in the first quarter of 2016 and runs concurrently with the term of the Newton Lease. There are no rent concessions related to the Second Amended Newton Lease, and
all rent concessions which were part of the Newton Lease and Amended Newton Lease remain unchanged.
Certain of the Companys
operating leases include lease incentives and escalating payment amounts and are renewable for varying periods. The Company is recognizing the related rent expense on a straight-line basis over the term of the lease taking into account the lease
incentives and escalating lease payments. Total rent expense under the Companys leases was approximately $4.4 million, $3.9 million and $4.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Future minimum lease payments under the Companys noncancelable operating leases at December 31, 2016 are as follows:
|
|
|
|
|
Years Ending December 31:
|
|
Minimum
Lease
Payments
|
|
2017
|
|
|
4,802
|
|
2018
|
|
|
4,982
|
|
2019
|
|
|
4,917
|
|
2020
|
|
|
972
|
|
2021
|
|
|
385
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,058
|
|
|
|
|
|
|
Net Worth Tax Contingency
In late March 2010, the Company received a letter from the Department of Revenue of the Commonwealth of Massachusetts (the MA DOR)
requesting documentation demonstrating that TSC had been classified by the
84
MA DOR as a Massachusetts security corporation for the 2006 and 2007 tax years. Following subsequent correspondence with the MA DOR and a settlement conference on March 22, 2011, the Company
received a Notice of Assessment from the MA DOR with respect to additional excise taxes on net worth related to TSC. Based on the Companys previous assessment that it was probable that the MA DOR would require an adjustment to correct
TSCs tax filings such that it would be treated as a Massachusetts business corporation for the applicable years, the Company recorded a liability representing its best estimate at that time of the potential net worth tax exposure. The tax
benefits available to a Massachusetts security corporation are composed of (i) a different rate structure (1.32% on gross investment income vs. 9.5% on net income) (See Note 12) and (ii) exemption from the 0.26% excise tax on net worth. As
of the date of the ruling, the Company had recorded a liability of approximately $257 to account for the tax differential in all open years, including penalties and interest. On August 17, 2011, the Company filed Applications for Abatement with
the MA DOR. In January 2012, the Company filed Petitions for Formal Procedure with the Massachusetts Appellate Tax Board (the ATB). A trial took place in April 2014, and in May 2015, the ATB ruled in favor of the MA DOR. During the
second quarter of 2015, the Company accepted an amnesty offer from the MA DOR and paid all amounts due.
Litigation
From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At
December 31, 2016 and 2015, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
10. Stock-Based Compensation
Stock
Option Plans
In September 1999, the Company approved a stock option plan (the 1999 Plan) that provided for the
issuance of shares of common stock incentives. The 1999 Plan provided for the granting of incentive stock options (ISOs), nonqualified stock options (NSOs), and stock grants. These incentives were offered to the
Companys employees, officers, directors, consultants, and advisors. Each option is exercisable at such times and subject to such terms as determined by the Companys Board of Directors (the Board); grants generally vest over a
four year period, and expire no later than ten years after the grant date.
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 Companys IPO in May 2007. Effective upon the consummation of the IPO, no further awards were
made pursuant to the 1999 Plan, but any outstanding awards under the 1999 Plan remain in effect and continue to be subject to the terms of the 1999 Plan. The 2007 Plan allows the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock
awards, restricted stock and other awards. Under the 2007 Plan, stock options may not be granted at less than fair market value on the date of grant, and grants generally vest 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 has 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
Company has reserved for issuance an aggregate of 2,911,667 shares of common stock under the 2007 Plan plus an additional annual increase to be added automatically on January 1 of each year, beginning on January 1, 2008, equal to the
lesser of (a) 2% of the outstanding number of shares of common stock (on a fully-diluted basis) on the immediately preceding December 31 and (b) such lower number of shares as may be determined by the compensation committee of the
Board of Directors of the Company. The number of shares available for issuance under the 2007 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. Generally, shares that are forfeited or
canceled from awards under the 2007 Plan
85
also will be available for future awards. To date, 8,224,334 shares have been added to the 2007 Plan in accordance with the automatic annual increase. In addition, shares subject to stock options
returned to the 1999 Plan, as a result of their expiration, cancellation or termination, are automatically made available for issuance under the 2007 Plan. As of December 31, 2016, a total of 3,623,283 shares were available for grant under the
2007 Plan.
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 Company calculated the fair
values of the options granted using the following estimated weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected volatility
|
|
|
46
|
%
|
|
|
47
|
%
|
|
|
78
|
%
|
Expected term
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
1.90
|
%
|
|
|
1.67
|
%
|
|
|
1.62
|
%
|
Expected dividend yield
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Weighted-average grant date fair value per share
|
|
$
|
3.91
|
|
|
$
|
3.72
|
|
|
$
|
7.22
|
|
The expected volatility of options granted has been determined using a weighted average of the historical
volatility of the Companys stock for a period equal to the expected life of the option. The expected life of options has been determined utilizing the simplified method. The risk-free interest rate is based on a zero coupon U.S.
treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be
zero. The Company applied an estimated annual forfeiture rate in determining the expense recorded in each period.
A summary of the stock
option activity under the Companys stock option plans for the year ended December 31, 2016 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term
in Years
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at December 31, 2015
|
|
|
2,922,736
|
|
|
$
|
7.97
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
|
8.49
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(701,947
|
)
|
|
|
7.12
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26,642
|
)
|
|
|
7.36
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(1,342,767
|
)
|
|
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
861,380
|
|
|
$
|
9.42
|
|
|
|
2.23
|
|
|
$
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
861,380
|
|
|
$
|
9.42
|
|
|
|
2.23
|
|
|
$
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested or expected to vest at December 31, 2016
|
|
|
861,380
|
|
|
$
|
9.42
|
|
|
|
2.23
|
|
|
$
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2016, 2015 and 2014, the total intrinsic value of options exercised
(i.e. the difference between the market price of the underlying stock at exercise and the price paid by the employee to exercise the options) was $1.9 million, $1.7 million and $4.2 million, respectively, and the total amount of cash received by the
Company from exercise of these options was $4.2 million, $2.8 million and $4.8 million, respectively.
86
Restricted Stock Unit Awards
Restricted stock unit awards are valued at the market price of a share of the Companys common stock on the date of the grant. A summary
of the restricted stock unit award activity under the 2007 Plan for the year ended December 31, 2016 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Nonvested outstanding at December 31, 2015
|
|
|
1,987,894
|
|
|
$
|
6.93
|
|
|
|
|
|
Granted
|
|
|
901,013
|
|
|
|
9.05
|
|
|
|
|
|
Vested
|
|
|
(671,909
|
)
|
|
|
6.28
|
|
|
|
|
|
Forfeited
|
|
|
(576,208
|
)
|
|
|
5.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested outstanding at December 31, 2016
|
|
|
1,640,790
|
|
|
$
|
8.54
|
|
|
$
|
13,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant-date fair value of restricted stock unit awards that vested during the years ended
December 31, 2016, 2015 and 2014 was $7.4 million, $7.2 million and $5.7 million, respectively.
As of December 31, 2016, there
was $11.5 million of total unrecognized compensation expense related to stock options and restricted stock unit awards which is expected to be recognized over a weighted average period of 1.9 years.
11. Stockholders Equity
Tender Offer
On May 10, 2016, the Company commenced a Tender Offer to purchase up to 8.0 million shares of its common stock,
representing approximately 24.8% of the shares of TechTargets common stock issued and outstanding at that time, at a price of $7.75 per share.
The Tender Offer expired on June 8, 2016. In accordance with the terms of the tender offer, the Company accepted for purchase 5,237,843
shares of its common stock for a purchase price of $7.75 per share, or a total of $40.6 million. Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. The total
cost of the Tender Offer was $40.8 million, which included approximately $0.2 million in costs directly attributable to the purchase of shares pursuant to the Tender Offer. In connection with the tender offer, TCV V, L.P., TCV Member Fund, L.P.
(along with TCV V, L.P., referred to as the TCV Funds) and TCV Management 2004, L.L.C. (TCM 2004), each a related party, collectively tendered 3,379,249 shares of the Companys common stock in the aggregate. Jay Hoag, a
member of the Companys board of directors at the time of the tender offer, was also a member of the general partner of the TCV Funds and a member of TCM 2004, which at the time was estimated to hold more than 5% of the voting securities of the
Company. Additionally, Rogram LLC, a related party, tendered 308,713 shares in connection with the tender offer. Roger Marino, a member of the Companys board of directors, indirectly controls shares in Rogram LLC.
Common Stock Repurchase Programs
In June 2016, the Company announced that the Board had authorized a $20 million stock repurchase program (the June 2016 Repurchase
Program), whereby the Company is authorized to repurchase the Companys common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner that may be determined by the Board. During
2016, the Company repurchased 980,329 shares of common stock, respectively, for an aggregate purchase price of $8.0 million pursuant to the June 2016 Repurchase Program.
87
In February 2016, the Company announced that the Board had authorized a $20 million stock
repurchase program (the February 2016 Repurchase Program), whereby the Company was authorized to repurchase the Companys common stock from time to time on the open market or in privately negotiated transactions. The February 2016
Repurchase Program was canceled on May 3, 2016 in connection with the Tender Offer noted above. The Company did not repurchase any shares of common stock pursuant to the February 2016 Repurchase Program.
In August 2014, the Company announced that the Board had authorized a $20 million stock repurchase program (the 2014 Repurchase
Program), whereby the Company was authorized to repurchase the Companys common stock from time to time on the open market or in privately negotiated transactions. In May 2015, the Board amended the program to authorize an additional $10
million to be used for such purchases. During 2015, the Company repurchased 1,671,687 shares of common stock for an aggregate purchase price of $15 million pursuant to the 2014 Repurchase Program. The 2014 Repurchase Program expired on
December 31, 2015.
Repurchased shares are 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 or proceeds from the Term Loan Agreement (see Note 8).
Share
Repurchase
In December 2014, the Company entered into a Purchase Agreement with TCV V, L.P. (TCV V) and TCV
Member Fund, L.P. (TCV Member Fund and collectively with TCV V, TCV), both related parties, pursuant to which the Company agreed to repurchase from TCV 1,000,000 shares of the Companys common stock for an aggregate
price of approximately $9.8 million. The purchase price per share of common stock was equal to 97% of the closing price of the common stock on the Nasdaq Global Market on December 8, 2014. The repurchase closed on December 10, 2014, and
these shares are included in the 1,551,224 shares of common stock purchased under the Repurchase Program discussed above. A member of the Companys Board is also a member of the general partner of TCV, which holds more than 5% of the voting
securities of the Company.
Secondary Offering
In May 2014, the Company 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 stockholders and the Company did not receive any proceeds from the offering. The Company incurred approximately $0.5 million of legal, accounting and other fees in connection with the
secondary public offering, which are included in general and administrative expenses in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2014.
Reserved Common Stock
As of
December 31, 2016, the Company has reserved 6,321,704 shares of common stock for use in settling outstanding options and unvested restricted stock awards that have not been issued as well as future awards available for grant under the 2007
Plan.
12. Income Taxes
Income
before provision for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S.
|
|
$
|
3,351
|
|
|
$
|
11,040
|
|
|
$
|
6,071
|
|
Foreign
|
|
|
1,666
|
|
|
|
881
|
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
5,017
|
|
|
|
11,921
|
|
|
$
|
7,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
The income tax provision for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,627
|
|
|
$
|
2,500
|
|
|
$
|
2,574
|
|
State
|
|
|
(569
|
)
|
|
|
167
|
|
|
|
15
|
|
Foreign
|
|
|
415
|
|
|
|
320
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,473
|
|
|
|
2,987
|
|
|
|
3,149
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,592
|
|
|
|
796
|
|
|
|
(424
|
)
|
State
|
|
|
(21
|
)
|
|
|
796
|
|
|
|
593
|
|
Foreign
|
|
|
(446
|
)
|
|
|
156
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
1,125
|
|
|
|
1,748
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,598
|
|
|
$
|
4,735
|
|
|
$
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision for the years ended December 31, 2016, 2015 and 2014 differs from the amounts
computed by applying the statutory federal income tax rate to the consolidated income before provision for income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Provision computed at statutory rate
|
|
$
|
1,757
|
|
|
$
|
4,172
|
|
|
$
|
2,477
|
|
Increase resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference in rates for foreign jurisdictions
|
|
|
(146
|
)
|
|
|
(181
|
)
|
|
|
(144
|
)
|
Tax exempt interest income
|
|
|
(21
|
)
|
|
|
(6
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
315
|
|
|
|
(430
|
)
|
|
|
(479
|
)
|
Other non-deductible expenses
|
|
|
67
|
|
|
|
14
|
|
|
|
104
|
|
Non-deductible officers compensation
|
|
|
738
|
|
|
|
408
|
|
|
|
492
|
|
State income tax provision
|
|
|
(380
|
)
|
|
|
573
|
|
|
|
337
|
|
Losses not benefitted
|
|
|
1
|
|
|
|
9
|
|
|
|
56
|
|
Secondary offering
|
|
|
|
|
|
|
|
|
|
|
188
|
|
Subsidiary earnings taxed in the US
|
|
|
253
|
|
|
|
|
|
|
|
|
|
True-up of prior year returns
|
|
|
11
|
|
|
|
197
|
|
|
|
|
|
Penalties and interest
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Other
|
|
|
3
|
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
2,598
|
|
|
$
|
4,735
|
|
|
$
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Significant components of the Companys net deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
308
|
|
|
$
|
341
|
|
Deferred revenue
|
|
|
187
|
|
|
|
78
|
|
Accruals and allowances
|
|
|
1,721
|
|
|
|
1,557
|
|
Stock-based compensation
|
|
|
1,656
|
|
|
|
5,493
|
|
Deferred rent expense
|
|
|
809
|
|
|
|
862
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
4,681
|
|
|
|
8,331
|
|
Less valuation allowance
|
|
|
(443
|
)
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,238
|
|
|
|
7,803
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible asset amortization
|
|
|
(1,865
|
)
|
|
|
(1,496
|
)
|
Depreciation
|
|
|
(2,434
|
)
|
|
|
(2,679
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,299
|
)
|
|
|
(4,175
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) assets
|
|
$
|
(61
|
)
|
|
$
|
3,628
|
|
|
|
|
|
|
|
|
|
|
As reported:
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
$
|
139
|
|
|
$
|
4,210
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities
|
|
$
|
200
|
|
|
$
|
582
|
|
|
|
|
|
|
|
|
|
|
In evaluating the ability to realize the net deferred tax asset, the Company considers all available evidence,
both positive and negative, including past operating results, the existence of cumulative losses in the most recent fiscal years, tax planning strategies that are prudent and feasible, and forecasts of future taxable income. In considering sources
of future taxable income, the Company makes certain assumptions and judgments which are based on the plans and estimates used to manage the underlying business of the Company. Changes in the Companys assumptions and estimates may materially
impact income tax expense for the period. The valuation allowance of $0.4 million and $0.5 million at December 31, 2016 and 2015, respectively, relates primarily to foreign net operating losses (NOLs) that the Company determined
were not more likely than not to be realized based on projections of future taxable income in China and Hong Kong. The valuation allowance (decreased)/increased by $(85), $(686) and $56 during the years ended December 31, 2016, 2015 and 2014,
respectively. To the extent realization of the deferred tax assets for foreign net operating losses becomes more likely than not, recognition of these acquired tax benefits would reduce income tax expense. As of December 31, 2016, the Company
has a federal NOL carryforward of approximately $36, which may be used to offset future taxable income. The federal NOL carryforward will expire in 2033.
The Company considers the excess of its financial reporting over its tax basis in its investment in foreign subsidiaries essentially permanent
in duration and as such has not recognized a deferred tax liability related to this difference.
The Company had no unrecognized tax
benefits at December 31, 2016. It is not expected that the amount of unrecognized tax benefits will change significantly within the next twelve months.
90
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years
ended December 31, 2016, 2015, and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of year
|
|
$
|
184
|
|
|
$
|
672
|
|
|
$
|
657
|
|
Reductions due to amnesty and settlement
|
|
|
(188
|
)
|
|
|
(160
|
)
|
|
|
|
|
Payments
|
|
|
|
|
|
|
(336
|
)
|
|
|
|
|
Gross increases related to positions taken in prior periods
|
|
|
4
|
|
|
|
8
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
184
|
|
|
$
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In late March 2010, the Company received a letter from the Massachusetts Department of Revenue (the MA
DOR) requesting documentation demonstrating that TSC, a wholly-owned subsidiary of the Company, had been classified by the MA DOR as a Massachusetts security corporation for the 2006 and 2007 tax years. Following subsequent correspondence with
the MA DOR, the Company determined that it was more likely than not that the MA DOR would require an adjustment to correct TSCs tax filings such that it would be treated as a Massachusetts business corporation for the applicable years. The
Company recorded a tax reserve of approximately $0.4 million. The tax benefits available to a Massachusetts security corporation are composed of (i) a different rate structure (1.32% on gross investment income vs. 9.5% on net income) and
(ii) exemption from the 0.26% excise tax on net worth (see Note 9). On August 17, 2011, the Company filed Applications for Abatement with the MA DOR. In January 2012, the Company filed Petitions under Formal Procedure with the ATB. A trial
took place in April 2014, and in May 2015 the ATB ruled in favor of the MA DOR. As of the date of the ruling, the Company had recorded a current liability of approximately $677 to account for the tax differential in all open years, which included
penalties and interest for the potential state income tax liability arising from the difference between the income tax rates applicable to security corporations and business corporations in Massachusetts. During the second quarter of 2015, the
Company accepted an amnesty offer from the MA DOR and paid all amounts due.
The Company files income tax returns in the U.S. and in
foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2013, except to the extent of net operating loss and tax
credit carryforwards from those years. Major taxing jurisdictions include the U.S., both federal and state.
As of December 31, 2016,
the Company had state NOL carryforwards of approximately $1.3 million, which may be used to offset future taxable income and expire at various dates through 2033. The Company has foreign NOL carryforwards of $1.0 million, which may be used to offset
future taxable income in foreign jurisdictions until they expire at various dates through 2021. The deferred tax assets relating to the foreign NOLs are fully offset by a valuation allowance. The current year decrease in the valuation allowance
relates primarily to the write off of the deferred tax asset for state and foreign net operating loss carryforwards and the corresponding valuation allowance previously recognized. The Company determined the foreign NOLs were not more likely than
not to be realized based on projections of future taxable income China and Hong Kong.
Undistributed earnings of the Companys
foreign subsidiaries amounted to approximately $5.1 million as of December 31, 2016. The Company has not provided any additional federal or state income taxes or foreign withholding taxes on the undistributed earnings as such earnings have been
indefinitely reinvested in the business. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.
13. Segment Information
The Company
views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations and how its executive management team reviews results and makes decisions on how to allocate resources and assess
performance.
91
Geographic Data
Net sales to unaffiliated customers by geographic area* were as follows**:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S.
|
|
$
|
79,535
|
|
|
$
|
85,284
|
|
|
$
|
81,921
|
|
International
|
|
|
27,090
|
|
|
|
26,542
|
|
|
|
24,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106,625
|
|
|
$
|
111,826
|
|
|
$
|
106,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets*** by geographic area were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
U.S.
|
|
$
|
98,330
|
|
|
$
|
99,091
|
|
International
|
|
|
4,972
|
|
|
|
4,980
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103,302
|
|
|
$
|
104,071
|
|
|
|
|
|
|
|
|
|
|
*
|
based on current customer billing address; does not consider the geo-targeted (target audience) location of the campaign
|
**
|
No single country outside of the U.S. accounted for 10% or more of revenue during any of these periods.
|
***
|
comprised of property, plant and equipment, net; goodwill; and intangible assets, net
|
14. 401(k) Plan
The Company maintains a 401(k) retirement savings plan (the Plan) whereby employees may elect to defer a portion of their
salary and contribute the deferred portion to the Plan. The Company contributes an amount equal to 50% of the employees contribution to the Plan, up to an annual limit of two thousand dollars. The Company contributed $0.9 million, $0.9 million
and $0.7 million to the Plan for the years ended December 31, 2016, 2015 and 2014, respectively. Employee contributions and the Companys matching contributions are invested in one or more collective investment funds at the
participants direction. The Companys matching contributions vest 25% annually and are 100% vested after four consecutive years of service.
15. Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Mar. 31
|
|
|
Jun. 30
|
|
|
Sep. 30
|
|
|
Dec. 31
|
|
|
Mar. 31
|
|
|
Jun. 30
|
|
|
Sep. 30
|
|
|
Dec. 31
|
|
Total revenues
|
|
$
|
25,031
|
|
|
$
|
29,174
|
|
|
$
|
25,750
|
|
|
$
|
26,670
|
|
|
$
|
23,658
|
|
|
$
|
29,757
|
|
|
$
|
29,007
|
|
|
$
|
29,404
|
|
Total cost of revenues
|
|
|
7,193
|
|
|
|
7,604
|
|
|
|
7,612
|
|
|
|
7,808
|
|
|
|
6,984
|
|
|
|
7,596
|
|
|
|
7,512
|
|
|
|
7,811
|
|
Total gross profit
|
|
|
17,838
|
|
|
|
21,570
|
|
|
|
18,138
|
|
|
|
18,862
|
|
|
|
16,674
|
|
|
|
22,161
|
|
|
|
21,495
|
|
|
|
21,593
|
|
Total operating expenses
|
|
|
17,600
|
|
|
|
17,266
|
|
|
|
17,589
|
|
|
|
17,162
|
|
|
|
16,518
|
|
|
|
17,941
|
|
|
|
18,042
|
|
|
|
17,252
|
|
Operating income
|
|
|
238
|
|
|
|
4,304
|
|
|
|
549
|
|
|
|
1,700
|
|
|
|
156
|
|
|
|
4,220
|
|
|
|
3,453
|
|
|
|
4,341
|
|
Net income (loss)
|
|
$
|
(48
|
)
|
|
$
|
2,399
|
|
|
$
|
(22
|
)
|
|
$
|
90
|
|
|
$
|
347
|
|
|
$
|
2,829
|
|
|
$
|
2,041
|
|
|
$
|
1,969
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.09
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
92