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MarketScreener Homepage  >  Equities  >  Nasdaq  >  TechTarget, Inc.    TTGT

TECHTARGET, INC.

(TTGT)
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TECHTARGET : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/04/2020 | 04:23pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and accompanying notes included elsewhere in this Quarterly Report on
Form 10-Q. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors including those discussed below in this Quarterly
Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended
December 31, 2019 under Part I, Item 1A, "Risk Factors," in our Quarterly Report
on Form 10-Q for in our Quarterly Report on Form 10-Q for the quarter ended June
30, 2020 under Part II, Item 1A, "Risk Factors" under Part I, Item 1A, "Risk
Factors," and in the other documents we file with the Securities and Exchange
Commission. Please refer to our "Forward-Looking Statements" section on page 35.

Overview


TechTarget, Inc. ("we" or "the Company") is a Delaware corporation incorporated
on September 14, 1999. Through continued innovation around our specialized
online content for buyers of enterprise technology solutions we have become a
global leader in purchase intent-driven marketing and sales services that
deliver business impact for enterprise business-to-business "B2B" technology
companies. Our offerings enable B2B technology companies to better identify,
reach and influence corporate enterprise technology decision makers actively
researching specific enterprise technology purchases. We improve a vendor's
ability to impact these audiences for business growth using advanced targeting,
analytics and data services complemented with customized marketing programs that
integrate demand generation, brand marketing and advertising techniques.

Enterprise technology has become increasingly specialized, and the websites within our network of over 140 websites address every major enterprise technology segment such as storage, security, networking, and business applications. Enterprise technology and business professionals rely on us for key decision support information tailored to their specific areas of responsibility.


We enable enterprise technology and business professionals to navigate the
complex and rapidly-changing enterprise technology landscape where purchasing
decisions can have significant financial and operational consequences. Our
content strategy includes three primary sources that enterprise technology and
business professionals use to assist them in their pre-purchase research:
independent content provided by our professionals, vendor-generated content
provided by our customers and member-generated, or peer-to-peer, content. In
addition to utilizing our independent editorial content, registered members
appreciate the ability to deepen their pre-purchase research by accessing the
extensive vendor supplied content available across our website network.
Likewise, these members derive significant additional value from the ability our
network provides to seamlessly interact with and contribute to information
exchanges in a given field.

We had approximately 20.6 million and 19.9 million registered members - our
"audiences" - as of September 30, 2020 and 2019 respectively. During the second
quarter of 2020, the Company ended a partnership with a company covering the
Belgium, Netherlands, and Luxembourg ("Benelux") region. This reduced our member
number by 0.5 million. Additionally, we restated our 2019 membership to remove
the Benelux member number as of September 30, 2019 (0.5 million). We believe
that we have sufficient members within our remaining database to support our
business needs within the Benelux region. While the size of our registered
member base does not provide direct insight into our customer numbers or our
revenues, the value of our services sold to our customers is a direct result of
the breadth and reach of this content footprint. This footprint creates the
opportunity for our customers to gain business leverage by targeting our
audiences through customized marketing programs. Likewise, the behavior
exhibited by these audiences enables us to provide our customers with data
products to improve their marketing and sales efforts. The targeted nature of
our member base enables B2B technology companies to reach a specialized audience
efficiently because our content is highly segmented and aligned with the B2B
technology companies' specific products. With it, we have developed a broad
customer base and, in 2020 expect to deliver marketing and sales services
programs to approximately 1,500 to 1,600 customers.







                                       22
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Executive Summary

COVID-19 Business Update


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




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




Our remaining debt obligation for 2020, including required interest payments, is
approximately $0.5 million. We generated $33.3 million in cash from operations
during the nine months ended September 30, 2020. In July 2020, we obtained a $20
million line of credit with Western Alliance Bank. While we do not have any
current plans to utilize the line of credit, we feel that the line of credit
provides us with additional flexibility in the current economic environment. We
expect to be able to maintain adequate liquidity to satisfy our cash needs as we
navigate through the current environment, although we could experience
significant fluctuations in our cash flows from period to period. If necessary,
we may take additional steps to preserve adequate liquidity, including through
accessing capital markets and other sources of external financing.



During the third quarter we saw trends similar to those we saw at the end of the
first quarter and during the second quarter. We saw a general shift in customer
behavior moving away from longer-term contracts in favor of shorter-term
contracts, which allow our customers greater flexibility. Additionally, our
ability to attract new customers to longer-term contracts was impacted as a
result of the general cautiousness related to the COVID-19 environment. These
factors resulted in Priority Engine revenue growth of only 5% over last year. We
saw weakness from our Global 10 accounts, in particular their investments in
their branding.



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

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



  • We own and operate our own websites which provides us with first party data.


              •  Historically, face to face events were more prevalent outside the
                 United States; the reallocation of certain of those marketing
                 budgets from face to face events to online, intent-based
                 offerings has created an opportunity for us.

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

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

Our priorities remain ensuring the health and safety of our employees, customers, vendors, members, stockholders, and other stakeholders, while delivering our content and services to our customers around the world and continuing to drive long-term growth.

Impacts on Future Financial Results




At the beginning of 2020, we expected the strong demand we saw in 2019 to
continue. However, beginning in March, we saw certain customers extend their
normal sales cycles and shift their budgets away from long-term commitments to
shorter-term marketing campaigns as they began to navigate through the pandemic.
This trend continued throughout the second quarter and third quarters of 2020
and through the date of this report. We expect these adverse impacts to result
in lower revenue for the duration of the pandemic. The impact COVID-19 will have
on our 2020 results remains uncertain, and we continue to evaluate the impacts
the pandemic will have on our business operations and strategy going forward. We
believe we will return to normal growth rates when the macro environment
improves.



                                       23
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For the Nine Months Ended September 30, 2020 Financial Results


Our revenues for the nine months ended September 30, 2020 increased by $4.4
million, or 4%, to $102.5 million, compared with $98.1 million, during the same
period in 2019. Priority Engine™ revenues increased 5% to more than $38.2
million, in the first nine months of 2020 compared with $36.3 million in the
first nine months of 2019. This increase was offset, in part, by our legacy
Global customers, who decreased their spend, particularly as it related to our
brand offerings.

The amount of revenue that we derived from longer-term contracts in the third
quarter of 2020 increased 8%, compared to the third quarter of 2019. As noted
above, we saw some of our customers shift from long-term commitments to
shorter-term commitments.

We continue to benefit from our customers' increasing demand for purchase intent
data to fuel their sales and marketing outreach. Another important factor in our
revenue trajectory relates to the evolving way our customers use our purchase
intent data relative to our offerings. Our offerings help customers identify
"in-market" prospects for their products and services - our offerings help them
reach, influence, and activate these prospects. A growing number of customers
purchase "always on" programs from us that combine offerings to identify and
influence active buyers throughout the year. The growth in our longer-term
revenue component is evidence of our continued traction for these types of
integrated programs. Additionally, customers use our offerings to support
quarterly sales and marketing campaigns. These purchases are more fluid -
customers of this type may focus more on offerings in a particular campaign, and
shift objectives as opposed to an "always on" program.

Our international geo-targeted revenues, where our target audience is outside
North America ("International"), increased more than 25% for the nine months
ended September 30, 2020, compared with the prior year period driven by the
items noted above.



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

                                       24

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Business Trends

The following discussion highlights key trends affecting our business not including items relating to the global pandemic, which is discussed in further detail above.

• Brexit. The United Kingdom'sSeptember 2016 referendum, in which voters

approved an exit of the United Kingdom from the European Union, commonly

referred to as "Brexit," resulted in significant general economic

uncertainty as well as volatility in global stock markets and currency

exchange rate fluctuations. In March 2017, the United Kingdom served

notice to the European Council under Article 50 of the Lisbon Treaty of

its intention to withdraw from the European Union. As of January 30, 2020,

the United Kingdom's membership in the European Union was terminated and

an eleven month transition period began which to time for a free trade

agreement to be negotiated. If no agreement can be reached at the end of

        this transition period, it could mean that the United Kingdom will face
        tariffs on goods traveling to the EU. Brexit could subject us to new
        regulatory costs and compliance obligations (including regarding the
        treatment and transfer of personal data). The full effect of

Brexit remains uncertain and depends on any agreements the United Kingdom

may make to retain access to the EU market. Moreover, the overall impact

of Brexit may create further global economic uncertainty, which may cause

a subset of our customers to more closely monitor their costs in the

affected region. Our revenue generated from customers who have billing

        addresses within the United Kingdom was approximately 10% of our total
        revenues for both periods ended September 30, 2020 and 2019.

• Privacy. On July 16, 2020, the Court of Justice of the European Union

invalidated the EU-US Privacy Shield Framework and upheld the adequacy of

the use of EU Standard Contractual Clauses. We, along with thousands of

other companies, relied on this EU-US Privacy Shield Framework, among

other mechanisms, for the transfer of personal data to data processors

established outside of the EU. The U.S Department of Commerce, European

Commission and the European Data Protection Board remain in close contact

regarding the impact of the CJEU decision and supervisory authorities are

expected to issue further guidance to business. We are evaluating what

additional mechanisms or actions may be required to establish adequate

safeguards for the further transfer of personal data.

• Product. Purchase intent data continues to drive our product strategy.

During 2020, we intend to make our purchase intent data more readily

available for salespersons at our customers, focusing on connectivity, ROI

metrics and attribution. Additionally, we will be focusing on extending

the market reach of our purchase intent data.

• Customer Demographics. In the three months ended September 30, 2020,

revenues from our legacy global customers decreased approximately 15%

compared to the same period 2019. Revenues from our largest 100 customers,

        excluding the legacy global customers described above increased by
        approximately 17% compared to the same period in 2019. Revenues
        attributable to remaining customers, which tend to be venture
        capital-backed start-ups that primarily operate in North America,
        increased by approximately 11% over the prior year period.


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


Revenues

Revenue changes for the three and nine month period ended, September 30, 2020 as
compared to the same periods in 2019, are shown in the table below. See the
discussion above and Note 3 and Note 13 to our consolidated financial statements
for additional information on our revenues.



                          For the Three Months Ended                             For the Nine Months Ended
                                 September 30,             Percent Change              September 30,             Percent Change
                           2020                2019                               2020                2019
North America          $      21,663$      22,813         -5%         $       62,518$     66,444         -6%
International                 14,581              10,996         33%                 39,938             31,623         26%
Total                  $      36,244$      33,809         7%          $      102,456$     98,067         4%




                                       25
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We sell customized marketing programs to B2B technology companies targeting a
specific audience within a particular enterprise technology or business sector
or sub-sector. We maintain multiple points of contact with our customers to
provide support throughout their organizations and their customers' enterprise
technology sales cycles. As a result, our customers often run multiple
advertising programs with us in order to target their desired audience of
enterprise technology and business professionals more effectively. There are
multiple factors that can impact our customers' marketing and advertising
objectives and spending with us, including but not limited to, enterprise
technology product launches, increases or decreases to their advertising
budgets, the timing of key industry marketing events, responses to competitor
activities and efforts to address specific marketing objectives such as creating
brand awareness or generating sales leads. Our products and services are
generally delivered under short-term contracts that run for the length of a
given program, typically less than nine months. We continue to enter into
longer-term contracts with certain customers, and in the quarter ended,
September 30, 2020 approximately 35% of our revenues were from longer-term
contracts of approximately twelve months.

Product and Service Offerings

We use our offerings to provide B2B technology companies with numerous touch points to identify, reach and influence key enterprise technology decision makers. The following is a description of the products and services we offer:


IT Deal Alert. IT Deal Alert is a suite of products and services for B2B
technology companies that leverages the detailed purchase intent data that we
collect about end-user enterprise technology organizations. Through proprietary
scoring methodologies, we use this insight to help our customers identify and
prioritize accounts whose content consumption around specific enterprise
technology topics indicates that they are "in-market" for a particular product
or service. We also use the data directly to identify and further profile
accounts' upcoming purchase plans.

• Priority Engine™. Priority Engine is a subscription service powered by our

        Activity Intelligence platform, which integrates with customer
        relationship management and marketing automation platforms from
        salesforce.com, Marketo, Eloqua, Pardot, and Integrate. The service
        delivers information that enables marketers and sales personnel to

identify and understand accounts and individuals actively researching new

technology purchases and then to engage those active prospects within the

organizations that are relevant to the purchase. We sell this service in

approximately 200 technology-specific segments which our customers use for

demand generation, account-based marketing and other marketing and sales

activities. Priority Engine is also available with specific geographic

focus, bringing the total available segments to over 300.

• Sales Quality Leads. Sales Quality Leads is a suite of products which

accelerate inside sales efforts by enabling our customers to prioritize

their resources. Qualified Sales Opportunities™ is a product that profiles

specific in-progress purchase projects, including information on scope and

purchase considerations, in approximately 85 technology-specific

segments. Building on the success of our Qualified Sales Opportunities

product, Sales-Ready Leads and High-Quality Leads, which were launched in

        2020, round out our qualified sales solutions with levels of
        pre-qualification tailored to the specific needs of our clients and their
        varied use cases.

• Deal Data™. Deal Data is a customized solution aimed at sales intelligence

and data scientist functions within our customer organizations. It renders

our Activity Intelligence data into one-time offerings directly consumable

        by the customer's internal applications.


                                       26
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Demand Solutions. Our offerings enable our customers to reach and influence
prospective buyers through content marketing programs designed to generate
demand for their solutions, and through display advertising and other brand
programs that influence consideration by prospective buyers. This allows B2B
technology companies to maximize return on investment by capturing sales leads
from the distribution and promotion of content to our audience of enterprise
technology and business professionals. Our demand solutions offerings may
include the following program components:

• White Papers. White papers are technical documents created by B2B

technology companies to describe business or technical problems which are

addressed by the vendors' products or services. In a program that includes

demand solutions, we post white papers on our relevant websites and our

members receive targeted promotions about these content assets. Prior to

viewing white papers, our registered members and visitors supply their

corporate contact information and agree to receive further information

from the vendor. The corporate contact and other qualification information

for these leads are supplied to the vendor in near real time through our

        proprietary lead management software.


    •   Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcasts,
        podcasts, videocasts, virtual trade shows and similar content bring

informational sessions directly to attendees' desktops and mobile devices.

As is the case with white papers, our members supply their corporate

contact and qualification information to the webcast, podcast, videocast

or virtual trade show sponsor when they view or download the content.

Sponsorship includes access to the registrant information and visibility

before, during and after the event.

• Content Sponsorships. B2B technology companies, or groups of vendors, pay

us to sponsor independent editorially created content vehicles on specific

        technology topics where the registrant information is then provided to all
        participating sponsors. In some cases, these vehicles are supported by

multiple sponsors in a single segment, with the registrant information

        provided to all participating sponsors. Because these offerings are
        editorially driven, our customers get the benefit of association with
        independently created content as well as access to sales leads that are
        researching the topic.


Brand Solutions. Our suite of brand solutions offerings provides B2B technology
companies exposure to targeted audiences of enterprise technology and business
professionals actively researching information related to their products and
services. We leverage our Activity Intelligence to enable significant
segmentation and targeting of specific audiences that can be accessed through
these programs. Components of brand programs may include:

• On-Network Branding. These offerings enable our customers to influence

prospective buyers through display advertising purchased on the websites

we operate. Programs may include specific sites or audience segments

across our sites.

• Off-Network Branding. Our Off-Network offerings allow our customers to

influence prospective buyers through display advertising when they are

visiting other websites on the internet. We identify audience segments

that can be targeted based on their activity and demonstrated interests

against our content and websites, and offer an array of audience extension

and retargeting solutions that leverage Activity Intelligence.

• Microsites and Related Formats. We have a range of solutions that create

stand-alone websites for B2B Technology Companies, or "embedded" websites

that exist within the context of our existing websites, to enable a more

immersive experience for enterprise technology and business professionals

with the content and brand messaging of the vendor.



Custom Content Creation. We will at times create white papers, case studies,
webcasts or videos to our customers' specifications through our Custom Content
team. These customized content assets are then promoted to our audience within
both demand solutions and brand solutions programs.

Our suite of demand solutions offerings allows B2B technology companies to
maximize return on investment by capturing sales leads from the distribution and
promotion of content to our audience of enterprise technology and business
professionals. Our demand solutions campaigns typically offer the Activity
Intelligence Dashboard, a tool that gives our customers' marketers and sales
representatives a near real-time view of their prospects including insights on
the research activities

                                       27
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Cost of Revenues, Operating Expenses, and Other

Expenses consist of cost of revenues, selling and marketing, product development, general and administrative, depreciation and amortization, and interest and other expense, net. Personnel-related costs are a significant component of each of these expense categories except for depreciation and amortization and interest and other expense, net.


Cost of Revenues. Cost of revenues consists primarily of: salaries and related
personnel costs; member acquisition expenses (primarily keyword purchases from
leading internet search sites); freelance writer expenses; website hosting
costs; vendor expenses associated with the delivery of webcast, podcast,
videocast and similar content, and other offerings; stock-based compensation
expenses; facility expenses, and other related overhead.

Selling and Marketing. Selling and marketing expenses consist primarily of:
salaries and related personnel costs; sales commissions; travel-related
expenses; stock-based compensation expenses; facility expenses and other related
overhead. Sales commissions are recorded as expense when earned by the employee,
based on recorded revenues.

Product Development. Product development includes the creation and maintenance
of our network of websites, advertiser offerings and technical infrastructure.
Product development expense consists primarily of salaries and related personnel
costs; stock-based compensation expenses; facility expenses, and other related
overhead.

General and Administrative. General and administrative expenses consist primarily of salaries and related personnel costs; facility expenses and related overhead; accounting, legal and other professional fees; and stock-based compensation expenses.


Depreciation and Amortization. Depreciation expense consists of the depreciation
of our property and equipment and other capitalized assets. Depreciation is
calculated using the straight-line method over their estimated useful lives,
ranging from three to twelve years. Amortization of intangible assets expense
consists of the amortization of intangible assets recorded in connection with
our acquisitions. Separable intangible assets that are not deemed to have an
indefinite life are amortized over their estimated useful lives, which range
from 3 to 17 years, using methods that are expected to reflect the estimated
pattern of economic use.

Interest and Other Income (Expense), Net. Interest and other expense, net
consists primarily of interest costs and the related amortization of deferred
issuance costs on amounts borrowed under our Loan and Security Agreement (the
"Loan Agreement") with Western Alliance Bank and amortization of premiums on our
investments, less any interest income earned on cash, and short-term and
long-term investments. We historically have invested our cash in money market
accounts, municipal bonds, government agency bonds, U.S.Treasury securities and
corporate bonds. Other expense, net consists of non-operating gains or losses,
primarily related to realized and unrealized foreign currency gains and losses
on trade assets and liabilities.

Application of Critical Accounting Policies and Use of Estimates


The discussion of our financial condition and results of operations is based
upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S."). The preparation of these financial statements requires us to make
estimates, judgments and assumptions that affect the reported amount of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenues, long-lived assets, goodwill, allowance for doubtful
accounts, stock-based compensation, contingent liabilities, self-insurance
accruals and income taxes. We based our estimates of the carrying value of
certain assets and liabilities on historical experience and on various other
assumptions that we believe to be reasonable. In some cases, changes in the
accounting estimates are reasonably likely to occur from period to period. Our
actual results may differ from these estimates under different assumptions or
conditions.

Our critical accounting policies are those that affect our more significant
judgments used in the preparation of our consolidated financial statements. A
description of our critical accounting policies and estimates is contained in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Other than those noted in Note 2 to our consolidated financial statements, there
were no material changes to our critical accounting policies and estimates
during the first nine months of 2020.

                                       28

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Income Taxes


We are subject to income taxes in both the U.S. and foreign jurisdictions, and
we use estimates in determining our provision for income taxes. We recognize
deferred tax assets and liabilities based on temporary differences between the
financial reporting and income tax bases of assets and liabilities using
statutory rates.

Our deferred tax assets are comprised primarily of book to tax differences on
stock-based compensation and timing of deductions for rent expense, accrued
expenses, depreciation, and amortization. As of September 30, 2020, we had
foreign net operating loss ("NOL") carryforwards of $0.2 million, which may be
used to offset future taxable income in foreign jurisdictions indefinitely.

Results of Operations

The following table sets forth our results of operations for the periods indicated, including percentage of total revenues:




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



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

Revenues



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




The increase in revenues was due to customers increasing their spend for data
driven marketing products. Priority Engine revenue grew 4% versus the prior year
period to $13.2 million. Increases in lead generation, driven by the customers
movement to shorter-term contracts, were offset by decreases in brand.

Cost of Revenues and Gross Profit

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


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Gross Profit. Our gross profit is equal to the difference between our revenues
and our cost of revenues for the period. Gross profit percentage was 75% for the
three months ended September 30, 2020 and 76% for the three months ended
September 30, 2019. Gross profit increased by $1.3 million in the three months
ended September 30, 2020 compared to the same period in 2019, primarily
attributable to increased revenues compared to the same period a year ago,
offset, in part, by an increase in outside consultant expenditures. Because the
majority of our costs are labor-related, we expect our gross profit to fluctuate
from period to period depending on the total revenues for the period.

Operating Expenses and Other



                                                 Three Months Ended September 30,
                                                                   Increase        Percent
                                         2020         2019        (Decrease)       Change
Operating expenses:
Selling and marketing                  $ 13,792$ 12,454$      1,338            11 %
Product development                       1,961        2,085             (124 )          -6 %
General and administrative                3,355        3,107              248             8 %
   Depreciation and amortization          1,452        1,205              247            20 %
Total operating expenses               $ 20,560$ 18,851$      1,709             9 %

Interest and other expense, net $ 91$ (409 )$ 500

           122 %

(Benefit) provision for income taxes $ (219 )$ 1,151$ (1,370 ) -119 %





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

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


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

Depreciation and Amortization. Depreciation and amortization expense increased
due to newly acquired intangible assets with high value, which were placed in
service during 2020 and amortized during the three months ended September 30,
2020. Those intangible assets were not in service during the same period in
2019.

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


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

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

Revenues

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


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The increase in revenues was due to customers increasing their spending for data
driven marketing products.  Priority Engine™ revenues were up 5% in versus last
year to $38.2 million the nine months ended September 30, 2020. Increases in
lead generation, driven by the customers movement to shorter-term contracts,
were offset by decreases in brand.

Cost of Revenues and Gross Profit

                                    Nine Months Ended September 30,
                                                                      Percent
                             2020          2019        Increase       Change
Cost of revenues          $   26,148$ 23,011$    3,137            14 %
Gross profit              $   76,308$ 75,056$    1,252             2 %
Gross profit percentage           74 %         77 %




Gross Profit. Our gross profit is equal to the difference between our revenues
and our cost of revenues for the period. Gross profit percentage was 74% for the
first nine months of 2020 and 77% for the nine months ended September 30, 2019.
Gross profit increased by $1.2 million in the nine months ended September 30,
2020 compared to the same period in 2019, primarily attributable increased
revenue, offset, in part, by an increase in contracted services. Because the
majority of our costs are labor-related, we expect our gross profit to fluctuate
from period to period depending on the total revenues for the period.



Operating Expenses and Other

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




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



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

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

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

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


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

                                       31

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Seasonality


The timing of our revenues is affected by seasonal factors. Our revenues are
seasonal primarily as a result of the annual budget approval process of many of
our customers, the normal timing at which our customers introduce new products,
and the historical decrease in advertising in summer months. The timing of
revenues in relation to our expenses, many of which do not vary directly with
revenues, has an impact on the cost of online revenues, selling and marketing,
product development, and general and administrative expenses as a percentage of
revenues in each calendar quarter during the year.

The majority of our expenses are personnel-related and includes salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period.

Liquidity and Capital Resources

Resources


Our cash and investments at September 30, 2020 totaled $62.5 million, a $5.0
million increase from December 31, 2019, primarily driven by our cash generated
from operations offset in part by the repurchase of shares of our common stock
under our November 2018 Repurchase Program, the acquisition of substantially all
the operating assets of Data Science Central in February 2020, investments in
property and equipment, and principal payments on our term loan. We believe that
our existing cash and investments and our cash flow from operating activities
will be sufficient to meet our anticipated cash needs for at least the next
twelve months. Additionally, we have $20 million available under a line of
credit agreement entered into in July 2020. Our future working capital
requirements will depend on many factors, including the operations of our
existing business, our potential strategic expansion internationally, future
acquisitions we might undertake, and any expansion into complementary
businesses. To the extent that our cash and investments, cash flow from
operating activities, and amounts available under our line of credit are
insufficient to fund our future activities, we may need to raise additional
funds through bank credit arrangements or public or private equity or debt
financings. We also may need to raise additional funds in the event we determine
in the future to effect one or more additional acquisitions of businesses.



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




Cash and Investments

Our cash and investments, at September 30, 2020 were held for working capital purposes. We do not enter into investments for trading or speculative purposes.

Accounts Receivable, Net


Our accounts receivable balance fluctuates from period to period, which affects
our cash flow from operating activities. The fluctuations vary depending on the
timing with which we meet our performance obligations and on the timing of our
cash collections, as well as on changes to our allowance for doubtful accounts.
We use days sales outstanding ("DSO") as a measurement of the quality and status
of our receivables. We define DSO as net accounts receivable at quarter end
divided by total revenues for the applicable period, multiplied by the number of
days in the applicable period. DSO was 62 days and 69 days at September 30, 2020
and December 31, 2019, respectively.

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Cash Flows

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


Operating Activities

Cash provided by operating activities primarily consists of net income adjusted
for certain non-cash items including depreciation and amortization, provisions
for bad debt, stock-based compensation, deferred income taxes, and the effect of
changes in working capital and other activities. Cash provided by operating
activities for the nine months ended September 30, 2020 was $33.3 million
compared to cash provided by operating activities of $30.0 million for the nine
months ended September 30, 2019.

The increase in cash provided by operating activities was primarily the result
of changes in working capital (driven mainly by increases in amounts payable for
income and payroll taxes as compared to 2019) offset by decreases in amounts
collected from accounts receivable.

Investing Activities


Cash used in investing activities in the nine months ended September 30, 2020
was $10.1 million and was primarily a result of the acquisition of substantially
all of the operating assets of Data Science Central in February 2020 ($5.0
million) and purchase of property and equipment, primarily for internal-use
software, and to a lesser extent, computer equipment. In the first nine months
of 2019 we used $4.2 million in investing activities primarily a result of
purchase of property and equipment($4.7 million), primarily for internal-use
software, and to a lesser extent, computer equipment offset by $0.5 million from
the maturity of investments. We capitalized internal-use software and website
development costs of $4.6 million and $3.9 million for the nine months ended
September 30, 2020 and 2019, respectively.

Financing Activities


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

Common Stock Repurchase Program


In November 2018 the Company announced that the Board had authorized a $25.0
million stock repurchase program (the "November 2018 Repurchase Program") under
which the Company is authorized to repurchase the Company's common stock from
time to time on the open market or in privately negotiated transactions at
prices and in a manner that may be determined by management. The Company
repurchased 736,760 shares at an aggregate purchase price of approximately $14.8
million during the first quarter of 2020 under the November 2018 Stock
Repurchase Program. No amounts were repurchased under this plan during the
second quarter of 2020. During the nine months ended September 30, 2019 we
repurchased 317,724 shares of common stock for an aggregate purchase price of
approximately $4.7 million pursuant to the ("November 2018 Repurchase
Program"). The November 2018 Repurchase Program was terminated on May 1, 2020.

On May 1, 2020, the Company's Board of Directors approved a new two-year $25.0
million stock repurchase program (the "May 2020 Repurchase Program").
Repurchases of the Company's stock under the May 2020 Repurchase Program may be
made in the open market, in privately negotiated transactions, or pursuant to
one or more trading plans. The timing and amount of repurchases, if any, will be
determined by the Company's management at its discretion and be based on a
variety of factors such as the market price of the Company's common stock,
corporate and contractual requirements, prevailing market and economic
conditions and legal

                                       33

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

Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets. All repurchased shares were funded with cash on hand.

Term Loan and Credit Facility Borrowings


On December 24, 2018, we entered into a Loan and Security Agreement (the "Loan
Agreement") with Western Alliance Bank (the "Bank") as the lender. The Loan
Agreement provides for a $25 million term loan facility with a maturity date of
December 10, 2023 (the "Term Loan").

The borrowings under the Loan Agreement are secured by a lien on substantially
all of our assets, including a pledge of the stock of certain wholly-owned
subsidiaries (limited, in the case of the stock of certain foreign subsidiaries,
to no more than 65% of the capital stock of such subsidiaries). The Term Loan
must be repaid quarterly, with applicable interest paid monthly, in the
following manner: 1.25% of the initial aggregate borrowings are due and payable
each quarter for the first two loan years, 1.88% of the initial aggregate
borrowings are due and payable each quarter for the third loan year, and 2.50%
of the initial aggregate borrowings are due and payable each quarter for the
fourth and fifth loan years. At maturity, all outstanding amounts, including
unpaid principal and accrued and unpaid interest, under the Loan Agreement will
be due and payable.

The borrowings are subject to a leverage ratio, measured quarterly. The Loan
Agreement also requires us to make representations and warranties and to comply
with certain other covenants and agreements that are customary in loan
agreements of this type. At September 30, 2020, we were in compliance with all
covenants under the Loan Agreement.

The Loan Agreement bears interest at a floating per annum rate equal to one and
three-eighths percent (1.375%) above the greater of (a) the one (1) month U.S.
LIBOR rate reported in The Wall Street Journal and (b) two percent (2.00%).

The Loan Agreement may be prepaid at our option without penalty, provided we comply with the notice provision of the document. The Loan Agreement also contains customary events of default, subject to grace periods in certain cases, which may cause repayment of the Term Loan to be accelerated.


On July 2, 2020, the Company and the Bank entered in a Loan and Security
Modification Agreement (the "Modification Agreement") amending the Loan
Agreement between the Company and the Bank. Among other things, the Modification
Agreement added or amended certain definitions in the Loan Agreement, added a
new asset coverage ratio financial covenant of no less than 1.0 to 1.0 tested as
of the end of each quarter, and provided the Company with a new revolving line
of credit facility of $20,000,000 ("Line of Credit"). The Line of Credit allows
the Company to request non-formula advances in an aggregate principal amount not
to exceed the Line of Credit and to use the proceeds of such advances until the
facility matures on July 2, 2022. Advances under the Line of Credit bear
interest at a floating rate equal to one-quarter percent (0.25%) above the Prime
Rate (as published in the Money Rates section of the Western Edition of The Wall
Street Journal, or such other rate of interest publicly announced from time to
time by Western Alliance Bank as its Prime Rate); provided that at no time shall
the interest rate on such advances be less than three and one half percent
(3.50%). Additionally, the Modification Agreement includes language providing
for the Company and the Bank to mutually agree upon a LIBOR replacement if LIBOR
ceases to exist or is no longer available.

                                       34

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Capital Expenditures


We have made capital expenditures primarily for computer equipment and related
software needed to host our websites, internal-use software development costs,
as well as for leasehold improvements and other general purposes to support our
growth. Our capital expenditures totaled $4.9 million and $4.8 million for the
nine month periods ended September 30, 2020 and, 2019 respectively. A majority
of our capital expenditures in the first nine months of 2020 were for
internal-use software and website development costs and, to a lesser extent,
computer equipment and related software. A majority of our capital expenditures
in the first nine months of 2019 were for leasehold improvements and
internal-use software and website development costs and, to a lesser extent,
computer equipment and related software. We capitalized internal-use software
and website development costs of $4.6 million and $3.9 million for the nine
months ended September 30, 2020 and 2019, respectively. We are not currently
party to any purchase contracts related to future capital expenditures.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations


There were no material changes to our contractual obligations and commitments
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2019.





Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included or referenced in this Quarterly Report that address
activities, events or developments which we expect will or may occur in the
future are forward-looking statements, including statements regarding our
intent, beliefs or current expectations and those of our management team. In
some cases, you can identify forward-looking statements because they contain
words such as "may," "will," "should," "expects," "plans," "anticipates," "going
to," "could," "intends," "target," "projects," "contemplates," "believes,"
"estimates," "predicts," "potential," or "continue," or the negative of these
words or other similar terms or expressions that concern our expectations,
strategy, priorities, plans, or intentions. Such statements may include those
regarding our future financial results and other projections or measures of our
future operating performance, including the drivers of such growth,
profitability, and performance (including, in each case, any potential impact of
product and service development efforts, GDPR, potential changes to customer
relationships, and other operational decisions); expectations concerning market
opportunities and our ability to capitalize on them; the amount and timing of
the benefits expected from acquisitions, new strategies, products or services
and other potential sources of additional revenue; and the behavior of our
members, partners, and customers. These statements speak only as of the date of
this Quarterly Report and are based on our current plans and expectations. Such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties that could cause actual future events or results to be
different than those described in or implied by such forward-looking statements.
These risks and uncertainties include, but are not limited to, those relating
to: market acceptance of our products and services, including continued
increased sales of our IT Deal Alert offerings and continued increased
international growth; relationships with customers, strategic partners and
employees; the duration and extent of the COVID-19 pandemic; difficulties in
integrating acquired businesses; changes in economic or regulatory conditions or
other trends affecting the internet, internet advertising and information
technology industries; data privacy laws, rules, and regulations; and other
matters included in our SEC filings, including in our Annual Report on Form 10-K
for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the
quarters ended our Quarterly Report on Form 10-Q for the quarter ended June 30,
2020, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q. Actual
results may differ materially from those contemplated by the forward-looking
statements. We undertake no obligation to update our forward-looking statements
to reflect future events or circumstances.

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