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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.00pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
+0.00pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
closing+6
force+4
restructuring+3
termination+3
impairment+1
Positive rising
gain+8
effective+2
enables+2
best+2
satisfy+2
MD&A (Item 7)
9,672 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.” Please refer to our “Forward-Looking Statements” section on page 3 of this Annual Report on Form 10-K.
Overview
Background
TechTarget, Inc. (the “Company”, “we”, “us” or “our”) is a global data, software and analytics leader for purchase intent-driven marketing and sales data which delivers business impact for business-to-business (“B2B”) companies. Our solutions enable B2B technology companies to identify, reach, and influence key enterprise technology decision makers faster and with higher efficacy. We offer products and services intended to improve information technology (“IT”) vendors’ abilities to impact highly targeted audiences for business growth using advanced targeting, first-party analytics and data services complemented with customized marketing programs that integrate content creation, demand generation, brand marketing, and other advertising techniques.
Our goal is to 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 which 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 and users appreciate the ability to deepen their pre-purchase research by accessing the extensive vendor-supplied content available across our virtual event and webinar channels and website network (collectively, our “Network”). Likewise, these members and users 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 31.8 million and 30.2 million registered members and users, which we refer to as our “audiences”, as of December 31, 2023 and 2022, respectively. While the size of our audiences does not provide direct insight into our customer numbers or our revenue, we believe the value of the services we sell to our customers is a direct result of the breadth and reach of this content footprint. This footprint creates the opportunity for our clients 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 audiences 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.
Through our ability to identify, reach and influence key decision makers, we have developed a broad customer base and, in 2023, delivered marketing and sales services programs to approximately 2,600 customers.
Transaction Agreement
On January 10, 2024, we announced that we had entered into the Transaction Agreement with Informa, New TechTarget, Toro Acquisition Sub, LLC (“Merger Sub”), Informa US Holdings Limited (“Ivory HoldCo”) and Informa Intrepid Holdings Inc (“Informa Tech”), pursuant to which, among other things, (i) Ivory HoldCo will contribute all of the issued and outstanding shares of capital stock of Informa Tech, plus $350 million in cash (subject to certain adjustments set forth in the Transaction Agreement for changes in net working capital of Informa Tech and in respect of EBITDA and certain non-current liabilities) to New TechTarget in exchange for New TechTarget common stock, (ii) Merger Sub will merge with and into TechTarget with TechTarget surviving the merger as a direct wholly owned subsidiary of New TechTarget (the “Merger”) and (iii) as a result of the Merger, each issued and outstanding share of our common stock will be converted (subject to certain exceptions) into the right to receive one share of New TechTarget common stock and a pro rata share of an amount in cash equal to $350 million plus the amount of the EBITDA adjustment (as defined in the Transaction Agreement), if any, which per share cash consideration amount is estimated as of the date of the Transaction Agreement to be approximately $11.79 per share of Common Stock.
Immediately following the closing of the proposed transaction, Informa and its affiliates will collectively own 57% of the outstanding New TechTarget common stock (on a fully diluted basis) and our stockholders will own the remaining outstanding New TechTarget common stock.
We will be required to pay Informa a termination fee between $30.0 and $40.0 million if the Transaction Agreement is terminated under certain specified circumstances, including termination by us in connection with our entry into an agreement with respect to a Toro Superior Proposal (as defined in the Transaction Agreement) prior to us receiving stockholder approval of the proposed transaction, or termination by Informa upon a Toro Change in Recommendation (as defined in the Transaction Agreement). The consummation of the proposed transaction is expected to occur in the second half of 2024 and remains subject to customary closing conditions, including satisfaction of certain regulatory approvals, approval by our stockholders and other customary closing conditions.
Executive Summary
Revenue
Our total revenues for the year ended December 31, 2023 decreased approximately $67.5 million, to $230.0 million, or 23% compared with the same period in 2022. We saw a decrease in customer spend across our product suite. Revenue from our Priority Engine products decreased 29% to $49.4 million in 2023, compared to 2022.
Adjusted Revenue
We define Adjusted Revenue as the sum of revenue and the impact of fair value adjustments to acquired unearned revenue related to services billed by an acquired company prior to its acquisition. Adjusted Revenue is a non-GAAP financial measure that management uses to evaluate growth of the business period over period, excluding the impact of adjustments due to purchase accounting. Adjusted Revenue should be considered in addition to Revenue, but should not be considered a substitute for, or superior to, Revenue. In addition, our definition of Adjusted Revenue may not be comparable to the definitions as reported by other companies. We believe that it is important to evaluate growth on this basis. In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as if it had originated the contracts. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. We adopted this accounting standard update on January 1, 2023 and it had no material effect on the Company’s consolidated financial statements and as a result expect Adjusted Revenue to be consistent with GAAP revenue moving forward.
The following table presents a reconciliation of Adjusted Revenue:
Years Ended December 31,
Revenue
Impact of fair value adjustment on acquired unearned revenue
Adjusted revenue
Revenue percentage change
Adjusted revenue percentage change
Longer-term contracts amounted to 37% of our revenue in 2023, which is down 4% from 41% in 2022. The amount of revenue that we derived from longer-term contracts in 2023 decreased by approximately $37.7 million, a decrease of 31% compared to the amount that we recognized in 2022.
Gross profit percentage was 67%, 74%, and 73% for the years ended December 31, 2023, 2022 and 2021, respectively. Gross profit decreased by $64.6 million for fiscal 2023 as compared to fiscal 2022, mainly due to the decrease in revenue compared to the same period a year ago.
Business Trends
The following discussion highlights key trends affecting our business.
Macro-economic Conditions and Industry Trends. Because most of our customers are B2B technology companies, the success of our business is intrinsically linked to the health, and subject to the market conditions, of the IT industry. Despite the current uncertainty in the economy, there are several factors indicating positive IT spending over the next few years is likely. We believe there are several IT catalysts such as AI, security, data analytics, and cloud migrations, to name a few. Our growth continues to be driven in large part by the return on the investments we made in our data analytics suite of products, which continues to drive market share gains for us. While we will continue to invest in this growth area,
management will also continue to carefully control discretionary spending such as travel and entertainment, and the filling of new and replacement positions, in an effort to maintain profit margins and cash flows. Our business has been and is likely to continue to be impacted by macro-economic conditions. Because our customers are B2B technology companies, the success of our business is intrinsically linked to the health and market conditions of the enterprise technology industry. We have continued to see weakness within this market. This reflects the macro technology environment in which customers remain cautious regarding their sales and marketing investment levels. We expect this dynamic to continue throughout 2024 because of uncertainty surrounding inflation, interest rates, the presidential election and geopolitical issues internationally.
Customer Demographics. In the year ended December 31, 2023,revenues from our legacy global customers (a static cohort comprised of our 10 historically largest on premises hardware technology companies), decreased by approximately 19%, compared to the prior year. Revenues from our remaining customers decreased 24% from the prior year. The metric measures the year-over-year increase or decrease in GAAP revenue from this cohort of customers and is calculated by dividing the GAAP revenue from this cohort of customers for the current year by the GAAP revenue from this cohort of customers for the prior year. We use this information to monitor customer concentration trends within our business, which we deem an important metric for evaluating revenue diversification.
Our key strategic initiatives include:
Geographic – During 2023, approximately 33% of our revenues were derived from international geo-targeted campaigns. We continue to focus on growing our international footprint. We expect that during 2024, international revenue will be consistent with 2023 levels as a percent of total revenue.
Product – Purchase intent data continues to drive our product road strategy. During 2024, we intend to improve upon our features by continuing to enhance our integrations, account based scoring and intent feeds among other strategic objectives. Additionally, we will continue to refine IntentMail AI TM which was launched in December 2023, which is Priority Engine’s AI-powered messaging feature, which enables sellers to automatically generate personalized email copy.
Sources of Revenues
Revenues for the twelve-month periods ended December 31, 2023, 2022 and 2021 by geo-target were as follows (in thousands):
Twelve Months Ended December 31,
% change
% change
Revenue
North America
International
Total Revenues
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’ IT 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, IT product launches, increases or decreases to their advertising budgets, the timing of key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads. Our products and services are generally delivered under short-term contracts that run for the length of a given program, typically less than nine months. In the quarter ended December 31, 2023 approximately 32% of our revenues were from longer-term contracts.
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. A suite of data, software and services for B2B technology companies that leverages the detailed purchase intent data we collect on enterprise technology organizations and professionals researching IT purchases via our network of websites and our webinar community platform. Through our proprietary data-capture and scoring methodologies, we use
this insight to help our customers identify and prioritize accounts and contacts whose content consumption and online research activities around specific enterprise technology topics indicate they are “in-market” for a particular B2B technology product or service. The suite of products and services includes Priority Engine and Qualified Sales Opportunities. Priority Engine is a subscription service powered by our Activity Intelligence platform, which integrates with CRM and MAPs including Salesforce.com, Marketo, Hubspot, Eloqua, Pardot, and Integrate. The service delivers lead generation workflow solutions designed to enable marketers and salesforces to identify and prioritize accounts and individuals actively researching new technology purchases or upgrades, and then to engage those active prospects. We launched IntentMail AI TM in December 2023, which is Priority Engine’s AI-powered messaging feature, which enables sellers to automatically generate personalized email copy. Qualified Sales Opportunities is a product that profiles specific in-progress purchase projects via surveys and interviews with business technology professionals whose research activity and content consumption is indicative of a pending technology purchase. Qualified Sales Opportunities include information on project scope, purchase criteria and vendors considered .
Demand Solutions. Our offerings enable our customers to reach and influence prospective buyers through content marketing programs, such as white papers, webcasts, podcasts, videocasts, virtual trade shows, and content sponsorships, designed to generate demand for their solutions, and through display advertising and other brand programs that influence consideration by prospective buyers. We believe this allows B2B technology companies to maximize ROI on marketing and sales expenditures by capturing sales leads from the distribution and promotion of content to our audience of enterprise technology and business professionals.
Brand Solutions. Our suite of brand solutions provide B2B technology companies with direct exposure to targeted audiences of enterprise technology and business professionals actively researching information related to their products and services. We leverage our Activity Intelligence platform to enable significant segmentation and behavioral targeting of audiences to improve the relevancy of digital ads to researcher needs. Branding solutions include on-network banner advertising and digital sponsorships, off-network banner targeting, and microsites and related formats.
Custom Content Creation. We deliver market insights and guidance to B2B technology companies through our Enterprise Strategy Group annual research and advisory subscription programs, custom market research services, and consulting engagements. In addition, Enterprise Strategy Group experts author custom content products including technical and economic validations, white papers, infographics, videos and webinars. This content is leveraged by B2B technology marketers to support product launches, enable demand-generation campaigns, and to establish overall thought leadership. We also create white papers, case studies, webcasts or videos to our customers’ specifications. These customized content assets are then promoted to our audience within both demand solutions and brand solutions programs. Additionally, we offer off-the-shelf editorial sponsorship products on topics aligned to customer markets, enabling them to engage and generate demand via packaged content created by our editorial staff to educate technology researchers on new technology trends and feature options.
BrightTALK platform. Allows our customers to create, host and promote webinars, virtual events and video content. Customers create their own hosted Channels on the platform where they schedule both live and on-demand webinars for promotion to BrightTALK’s community of in-market accounts and individuals. The BrightTALK Channel also enables customers to self-administer lead generation campaigns, set up workflow integrations between the Channel and their CRM and MAP systems, and access reporting detailing the size and growth of their community of subscribers over time. Customers may also create an off-network embedded Channel page on their own corporate website featuring content in their BrightTALK Channel, as well as an embedded BrightTALK registration form that captures and converts interested individuals to marketing leads.
Cost of Revenues, Operating Expenses and Other
Expenses consist of cost of revenues, selling and marketing, product development, general and administrative, depreciation, amortization, and interest and other expense, net. Personnel-related costs are a significant component of each of these expense categories except for depreciation, amortization and interest and other expense, net.
Cost of Revenue s. Cost of revenues consists primarily of salaries and related personnel costs; member acquisition expenses (primarily keyword purchases from leading internet search sites); lead generation expenses; 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 and entertainment-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 revenue.
Product Development. Product development includes the creation and maintenance of our network of websites and data analytics framework, 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; transaction-related expenses; and stock-based compensation expenses. For the year ended December 31, 2023, this also includes legal and other costs related to the proposed transaction with Informa.
Restructuring Cost for Reduction in Force. Restructuring cost for reduction in force consists of costs related to our December, 2022 reduction in force, mainly labor, stock compensation, and related benefits.
Depreciation. 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 ten years.
Amortization. Amortization expense consists of the amortization of intangible assets recorded in connection with our acquisitions, including changes in the value of contingent consideration in relation to certain of the acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from eighteen months to nineteen years, using methods that are expected to reflect the estimated pattern of economic use.
Interest and Other Expense, Net. Interest expense, net consists primarily of interest costs (offset in part by interest income), inducement expense and the related amortization of deferred issuance costs on our Notes and amounts borrowed under our current and our prior loan agreements and amortization of premiums on our investments, less any interest income earned on cash, cash equivalents and short-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 consists primarily of non-operating gains or losses, primarily related to realized and unrealized foreign currency gains and losses on trade assets and liabilities.
Gain on early extinguishment of debt. Gain on early extinguishment of debt relates to our repurchase of certain of our outstanding 2025 Notes.
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 GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, long-lived assets, goodwill, stock-based compensation, contingent liabilities, self-insurance accruals and income taxes. We base 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.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements. See the notes to our consolidated financial statements for information about these critical accounting policies as well as a description of our other accounting policies.
Revenue Recognition
We generate substantially all of our revenues from the sale of targeted marketing and advertising campaigns, which we deliver via our network of websites, event channels and data analytics solutions (see “Product and Service Offerings” above). We recognize revenue when performance obligations are satisfied by transferring promised goods and services to customers in an amount the Company expects to receive in exchange for those goods or services. The Company enters into contracts that can include various combinations of its offerings which are generally capable of being distinct and accounted for as a separate performance obligation. When performance obligations are combined into a single contract, we utilize stand-alone selling price (“SSP”) to allocate the transaction price among the
performance obligations. Our estimates of SSP for each performance obligation require judgment that considers multiple factors such as historical pricing trends and pricing practices within different geographies.
Revenue from our brand and demand solutions is primarily recognized when the transfer of control occurs. Certain of the contracts within brand and demand solutions are duration-based campaigns which, in the event of customer cancellation, provide the Company with an enforceable right to a proportional payment for the portion of the campaign based on services provided. Accordingly, revenue from duration-based campaigns is recognized using a time-based measure of progress, which the Company believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously transferred throughout the contract period. Revenue from microsites is recognized ratably over the life of the contract. Revenue from custom content creation is recognized over the expected period of performance using a single measure of progress, typically based on hours incurred. Payments received in advance of services being rendered are recorded as a component of contract liabilities.
Changes in judgments regarding these assumptions could impact the timing of revenue recognition.
Long-Lived Assets
Our long-lived assets consist primarily of property and equipment, capitalized software, goodwill, and other intangible assets. Goodwill and other intangible assets have arisen from our acquisitions. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow. Our long-lived assets, other than goodwill, are amortized over their estimated useful lives, which we determine based on the consideration of several factors including the period of time the asset is expected to remain in service. Intangible assets are amortized over their estimated useful lives, which range from eighteen months to nineteen years, using methods of amortization that are expected to reflect the estimated pattern of economic use. The carrying amounts of our acquired intangible assets are periodically reviewed for impairment whenever events or changes in circumstances indicate the assets may not be recoverable or their useful life is shorter than originally estimated. Consistent with our determination that we have only one reporting segment, we have determined that there is only one reporting unit and test goodwill for impairment at the entity level. We evaluate the carrying value and remaining useful lives of long-lived assets, other than goodwill, whenever indicators of impairment are present. We evaluate the carrying value of goodwill annually using the two-step process required by Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350”). The first step of the impairment test is to identify potential impairment by comparing the reporting unit’s fair value with its net book value (or carrying amount), including goodwill. The fair value is estimated based on a market value approach. If the fair value of the reporting unit exceeds it carrying amount, the reporting unit’s goodwill is not considered to be impaired and the second step of the impairment test is not performed. Whenever indicators of impairment are present, we would perform the second step and compare the implied fair value of the reporting unit’s goodwill, as defined by ASC 350, to its carrying value to determine the amount of the impairmentloss, if any. As of December 31, 2023, there were no indications of impairment based on our analysis, and our estimated fair value exceeded our carrying value by a significant margin.
Business Combinations and Valuation of Goodwill and Acquired Intangible Assets
The Company uses its best estimates and assumptions to allocate fair value to the net tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date. Any residual purchase price is recorded as goodwill. The Company’s estimates are inherently uncertain and subject to refinement and can include but are not limited to, the cash flows that an asset is expected to generate in the future, and the appropriate weighted-average cost of capital.
During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of operations.
Employee Stock Purchase Plan
In April 2022, the Company’s board of directors adopted the TechTarget, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”), which was approved by the stockholders of the Company at the 2022 Annual Meeting of Stockholders and became effective June 7, 2022. On June 7, 2022, 600,000 shares of the Company’s common stock were reserved for issuance under the ESPP. After the initial offering period of three months, which commenced September 1, 2022, eligible employees are offered shares of common stock over a
twelve-month offering period, which consists of two consecutive six-month purchase periods. Employees may purchase a limited amount (up to $25,000) of shares of the Company’s common stock under the ESPP at a discount of up to 15% of the lesser of the market value of the common stock at either (a) the beginning of the six-month purchase period during which the shares of common stock are purchased or (b) the end of such six-month purchase period. As of December 31, 2023, 545,556 shares of common stock remain available for issuance under the ESPP.
Stock-Based Compensation
We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in our results of operations using the straight-line method over the vesting period of the award. We use the Black-Scholes option pricing model to determine the fair value of stock option awards. We calculated the fair values of the options granted using the following estimated weighted average assumptions:
Years Ended December 31,
Expected volatility
Expected term
6 years
6 years
6 years
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value per share
The expected volatility of options granted in 2023, 2022, and 2021 was determined using a weighted average of the historical volatility of our stock for a period equal to the expected life of the option. The risk-free interest rate is based on a zero-coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. We applied an estimated annual forfeiture rate based on historical averages in determining the expense recorded in each period.
Internal-Use Software and Website Development Costs
We capitalize costs of materials, consultants and compensation and related expenses of employees who devote time to the development of internal-use software and website applications. We begin to capitalize our 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. Our judgment is required in determining the point at which various projects enter the state at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in which we develop and test new features and functionalities related to our internal use software and websites, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of internal use software and website development costs we capitalize and amortize in future periods would be impacted. We review capitalized internal-use software and website development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We would recognize an impairmentloss only if the carrying amount of the asset is not recoverable and exceeds its fair value. There were no impairments to internal-use software and website developments costs during the years ended December 31, 2023, 2022 or 2021. We capitalized internal-use software and website development costs of $14.2 million, $12.9 million, and $11.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Income Taxes
We are subject to income taxes in both U.S. and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates expected to be in effect when such differences are settled.
Our net deferred tax liabilities are comprised primarily of book to tax differences on stock-based compensation, intangible asset basis, net operating loss carryforwards, valuation allowance and timing of deductions for right-of-use assets and lease liabilities, accrued expenses, depreciation, and amortization.
Results of Operations
The following table sets forth our results of operations for the periods indicated:
Years Ended December 31,
($ in thousands)
Revenues:
Total cost of revenues
Amortization of acquired technology
Gross profit
Operating expenses:
Selling and marketing
Product development
General and administrative
Restructuring cost for a reduction in force
Depreciation
Amortization
Total operating expenses
Operating income (loss)
Interest and other income (expense), net
Gain from early extinguishment of debt
Income before provision for income taxes
Provision for income taxes
Net income
Comparison of Fiscal Years Ended December 31, 2023 and 2022
Revenues
Years Ended December 31,
Decrease
Percent
Change
($ in thousands)
Total revenues
Revenues for the year ended December 31, 2023 ("fiscal 2023") decreased by $67.5 million, or 23%, over the year ended December 31, 2022 ("fiscal 2022"), primarily due to the following:
We acquired approximately 800 additional new customers during the year ended December 31, 2023 compared to the year ended December 31, 2022 resulting in an approximately $34.6 million increase in revenues.
Our customers count decreased to approximately 2,600 from approximately 3,400, a decrease of 24%, resulting in an approximately $103.8 million decrease in revenues from customers.
Revenues increased by $1.7 million due to the renewal of acquired customer contracts previously recorded as unearned revenue.
Cost of Revenues and Gross Profit
Years Ended December 31,
Increase
(Decrease)
Percent
Change
($ in thousands)
Cost of revenues
Amortization of acquired technology
Total cost of revenues
Gross profit
Gross profit percentage
Cost of Revenues. Cost of revenues for fiscal 2023 decreased by $3.0 million, or 4%, as compared to fiscal 2022 primarily due to the following:
$1.9 million decrease in labor and related costs;
$1.8 million decrease in variable costs attributable to contracted costs related to fulfilling campaigns; and
$0.4 million increase in stock based compensation.
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 67% for fiscal 2023 compared to 74% for fiscal 2022. Gross profit decreased by $64.6 million in fiscal 2023 compared to fiscal 2022 primarily due to decreased revenue. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenue for the period.
Operating Expenses and Other
Years Ended December 31,
Increase/
(Decrease)
Percent
Change
($ in thousands)
Operating expenses:
Selling and marketing
Product development
General and administrative
Restructuring cost for a reduction in force
Depreciation
Amortization
Total operating expenses
Interest and other income, net
Gain from early extinguishment of debt
Provision for income taxes
Selling and Marketing . Sales and marketing costs decreased by $3.6 million in fiscal 2023 compared to fiscal 2022, primarily due to a $5.4 million increase in stock-based compensation offset by a $7.6 million decrease in labor and related costs and $1.3 million of decreased other costs.
Product Development . Product development costs decreased by $1.4 million in fiscal 2023 compared to fiscal 2022, primarily due to a $1.2 million decrease in labor and related costs.
General and Administrative . General and administrative costs increased by $2.2 million in fiscal 2023 compared to fiscal 2022, primarily due to a $4.1 million increase in non-recurring legal and advisor costs relating to the proposed transaction and a $0.4 million increase in stock-based compensation, offset by a $1.2 million decrease in software and related costs and a $1.0 million decrease in labor and related costs.
Restructuring Cost for Reduction in Force . Restructuring cost for reduction in force consists of costed relates to our December 2022 reduction in force and primarily consists of labor, stock compensation, and related severance benefits.
Depreciation . Depreciation expense increased $1.3 million in fiscal 2023 compared to fiscal 2022, due to increased capitalized software expenditures.
Amortization . Amortization expense increased $0.4 million in fiscal 2023 compared to fiscal 2022, due to a decrease in amortization expense in fiscal 2022 from a decrease in fair value of contingent consideration due on a prior acquisition.
Interest and Other Income, Net . Interest and other income, net, increased by $10.8 million in fiscal 2023 compared to fiscal 2022, primarily due to a $9.5 million increase in interest income, a $0.7 million decrease in unrealized/realized foreign currency exchange losses, and a $0.4 million decrease in impairment expenses.
Gain from Early Extinguishment of Debt . Gain from early extinguishment of debt relates to the repurchase of certain of our outstanding 2025 Notes. During fiscal 2023, we repurchased $48.3 million aggregate principal amount of our 2025 Notes for $42.6 million, including transaction costs, which resulted in a gain on early extinguishment of debt of $5.0 million. No such repurchases were made during fiscal 2022.
Provision for Income Taxes . Our effective tax rate was 69.0% and 27.7% for the years ended December 31, 2023 and 2022, respectively. The higher rate in 2023 as compared to 2022 was primarily due to stock-based compensation shortfalls instead of excess benefits in 2022, and nondeductible legal and accounting fees, offset by lower non-deductible officers compensation and state income tax provision due to lower revenue and increased research and development tax credit and foreign derived intangible income deduction.
Comparison of Fiscal Years Ended December 31, 2022 and 2021
Revenues
Years Ended December 31,
Increase
Percent
Change
($ in thousands)
Total revenues
Revenues for the year ended December 31, 2022 (“fiscal 2022”) increased by $34.1 million, or 13%, over the year ended December 31, 2021 (“fiscal 2021”), primarily due to the following:
Our existing customers revenue increased $8.5 million primarily due to a $9.8 million increase in revenue recognized with the renewal of acquired customer contracts.
Addition of new customers during fiscal 2022. Our customer count expanded to approximately 3,400 from approximately 2,800, an increase of approximately 20%, resulting in increased revenues of approximately $25.6 million.
Cost of Revenues and Gross Profit
Years Ended December 31,
Increase
/(Decrease)
Percent
Change
($ in thousands)
Cost of revenues
Amortization of acquired technology
Total cost of revenues
Gross profit
Gross profit percentage
Cost of Revenues. Cost of revenues for fiscal 2022 increased by $7.3 million, or 10%, as compared to fiscal 2021 primarily due to the following:
$0.8 million increase in stock compensation;
$2.6 million increase related to labor, benefits and related costs; and
$3.2 million increase in variable costs attributable to contracted services costs and other costs related to fulfilling campaigns.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit percentage was 74% for fiscal 2022 compared to 73% for fiscal 2021. The increase was primarily due to the increase in revenue over the prior period and the decrease in the amortization of acquired technology.
Operating Expenses and Other
Years Ended December 31,
Increase
/(Decrease)
Percent
Change
($ in thousands)
Operating expenses:
Selling and marketing
Product development
General and administrative
Restructuring cost for a reduction in force
Depreciation
Amortization
Total operating expenses
Interest and other expense (income), net
Provision for income taxes
Selling and Marketing. Sales and marketing costs increased by $5.0 million in fiscal 2022 compared to fiscal 2021, primarily due to a $5.2 million increase in stock-based compensation expenses.
Product Development. Product development costs increased by $0.7 million in fiscal 2022 compared to fiscal 2021, primarily due to higher contracted services and recruiting costs.
General and Administrative. General and administrative costs decreased by $3.1 million in fiscal 2022 compared to fiscal 2021, primarily due to a $3.3 million decrease in stock-based compensation costs and a $1.3 million decrease in pay related expenses, offset by a $1.3 million increase in bad debt expense and increased other costs.
Restructuring cost for reduction in force. Restructuring cost for reduction in force consists of costs related to our December, 2022 reduction in force, mainly labor, stock compensation and related benefits.
Depreciation. Depreciation expense increased $1.6 million in fiscal 2022 compared to fiscal 2021, primarily due to increased capitalized software expenditures.
Amortization. Amortization expense decreased $4.2 million in fiscal 2022 compared to fiscal 2021, primarily due to a decrease in fair value of contingent consideration.
Interest and Other Expense (income), Net. Interest and other expense (income), net, decreased by $24.1 million in fiscal 2022 compared to fiscal 2021, primarily due to a $3.4 million increase in net interest income offset by a decrease in inducement expense of $21.2 million incurred in connection with the retirement of approximately $149.9 million aggregate principal amount of our 2025 Notes (the “Inducement Expense”).
Provision for Income Taxes. Our effective tax rate was 27.7% and 91.0% for the years ended December 31, 2022 and 2021, respectively. The lower rate in 2022 as compared to 2021 was primarily due to decrease in nondeductible inducement expense and UK tax rate change. The effective tax rate differs from the statutory rate primarily due to permanent differences of non-deductible expenses, excess tax deductions from stock-based compensation, state income taxes, and foreign income taxes.
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, much of which do not vary directly with revenues, has an impact on the cost of 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 include salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period.
Liquidity and Capital Resources
Resources
Our cash, cash equivalents, and short-term investments at December 31, 2023 totaled $326.3 million, a $38.5 million decrease from December 31, 2022, primarily driven by cash utilized in investing and financing activities, which primarily consisted of purchases of shares of our common stock and of certain of our 2025 Notes under our repurchase program entered into during 2022, offset in part by cash generated from our operations. We believe that our existing cash, cash equivalents and short-investments, and our cash flow from operating activities will be sufficient to meet our anticipated cash needs for the next 12 months and beyond.
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, cash equivalents and short-term investments and cash flow from operating activities are insufficient to fund our future activities, we may raise additional funds through additional bank credit arrangements or public or private equity or debt financings with certain of the foregoing actions, if we were to move forward with them, we would be required to obtain Informa’s approval under the Transaction Agreement, subject to certain exceptions. In addition, we and New TechTarget are obligated under the Transaction Agreement to use our reasonable best efforts to enter into a revolving credit facility or other senior lending facility, which shall be entered into prior to (but effective upon) the closing of the proposed transaction, with commitments of at least $250,000,000 to be used (together with our and our subsidiaries available cash on hand) to satisfy our obligations under the Notes and for general working capital purposes.
As of December 31,
Cash, cash equivalents and short-term investments
Accounts receivable, net
Cash, Cash Equivalents and Investments
Our cash, cash equivalents and investments at December 31, 2023 were held for working capital purposes and were invested primarily in pooled bond funds. 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 flows from operating activities. The fluctuations vary depending on the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days sales outstanding (“DSO”) as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at quarter end divided by total revenues for the applicable period, multiplied by the number of days in the applicable period. DSO was 63 days at December 31, 2023, 76 days at December 31, 2022 and 60 days at December 31, 2021. The change in DSO year over year is primarily due to the timing of payments from all classes of customers.
Cash Flows
Years Ended December 31,
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Operating Activities
Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, the provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities.
The decrease in cash provided by operating activities in fiscal 2023 compared to fiscal 2022 was primarily the result of a decrease in net income of $37.1 million, a change in non-cash stock compensation of $4.1 million, a $2.8 million change in depreciation and amortization expense, a $5.0 million gain related to the repurchase of certain of our outstanding 2025 Notes, and an increase of $17.0 million due to changes in operating assets, liabilities, and non-cash expenses, primarily driven by a $31.7 million change in accounts receivable, offset by a $10.2 million change in contract liabilities and a $11.2 million change in income taxes payable and other current liabilities
The increase in cash provided by operating activities in fiscal 2022 compared to fiscal 2021 was primarily the result of increases in net income of $40.7 million, a change in non-cash stock compensation of $5.0 million, a $2.1 million change in depreciation and amortization expense, a $21.2 million decrease in induced conversion expense and a decrease of $13.3 million due to changes in operating assets, liabilities, and non-cash expenses, primarily driven by a $17.1 million change in contract liabilities offset by a $9.3 million change in accrued expenses and other current liabilities.
The increase in cash provided by operating activities in fiscal 2021 compared to fiscal 2020 was primarily the result of changes in non-cash stock compensation of $21.7 million, a $13.5 million change in depreciation and amortization expense, a $21.2 million increase in induced conversion expense and changes in operating assets and liabilities, primarily driven by a $13.8 million change in accrued expenses and related liabilities.
Investing Activities
Cash used in investing activities in the year ended December 31, 2023 was $93.0 million; which consisted of $14.7 million for the purchase of property and equipment and other capitalized assets, primarily made up of computer equipment and related software and internal-use development costs and $78.4 million for the acquisition of certain investment holdings.
Cash used in investing activities in the year ended December 31, 2022 was $14.5 million; which consisted of $14.0 million for the purchase of property and equipment and other capitalized assets, primarily made up of computer equipment and related software and internal-use development costs and $0.4 million for the acquisition of certain investment holdings.
Cash used in investing activities in the year ended December 31, 2021 was $57.0 million; which consisted of $12.6 million for the purchase of property and equipment and other capitalized assets, primarily made up of computer equipment and related software and internal-use development costs, $20 million for the acquisition of certain investment holdings, and $24.3 million for the purchase of Xtelligent Healthcare Media, LLC during July 2021.
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 $14.7 million, $14.0 million, and $12.6 million for the years ended December 31, 2023, 2022, and 2021, respectively. A majority of our capital expenditures in 2023, 2022, and 2021 were 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 $14.2 million, $12.9 million and $11.5 million for the year ended December 31, 2023, 2022, and 2021, respectively. We are not currently party to any purchase contracts related to future capital expenditures.
Financing Activities
We utilized $50 million, $79 million, and $0.0 million for repurchase of shares under our repurchase programs in 2023, 2022, and 2021, respectively, as well as $42.6 million related to the repurchase of certain of our 2025 Notes in 2023, $4.6 million, $9.4 million, and $0.4 million related to tax withholdings on net share settlements in 2023, 2022, and 2021, respectively. We paid earnout liabilities of $2.3 million, $5.2 million, and $1.1 million, during 2023, 2022, and 2021, respectively.
During 2021, we received net proceeds from our 2026 Notes offering of approximately $414 million, offset by $147 million used for repurchase and conversion of a portion of the outstanding 2025 Notes.
Repurchase Programs
In May 2020, we announced that our board of directors had authorized a $25.0 million stock repurchase program (the “May 2020 Repurchase Program”) whereby we were authorized to repurchase shares of our common stock from time to time on the open market or in privately negotiated transactions at prices and in the manner determined by management. We repurchased 206,114 shares at an aggregate purchase price of $14.2 million at an average share price of $68.82 under the May 2020 Repurchase Program during 2022. No amounts were repurchased under this program during 2021. The May 2020 Repurchase Program expired on May 1, 2022.
In May 2022, we announced that our board of directors had authorized a stock repurchase program (the “May 2022 Repurchase Program”) whereby we were authorized to repurchase shares of our common stock having an aggregate purchase prices of up to $50.0 million from time to time on the open market or in privately negotiated transactions at prices and in the manner determined by management. During the year ended December 31, 2022, we repurchased 836,329 shares for an aggregate purchase price of $50.0 million at an average share price of $59.77 under the May 2022 Repurchase Program. As of December 31, 2022, no amounts remained available under the May 2022 Repurchase Program.
In November 2022, we announced that our board of directors had authorized a new repurchase program (the “November 2022 Repurchase Program”) whereby we are authorized to repurchase shares of our common stock and convertible senior notes having an aggregate purchase price of up to $200.0 million from time to time on the open market or in privately negotiated transactions at prices and in the manner determined by management over the next two years. During the year ended December 31, 2023, we repurchased 1,318,664 shares for an aggregate purchase price of $50.0 million at an average share price of $37.90 under the November 2022 Repurchase Program and $42.6 million of certain of our 2025 Notes. During the year ended December 31, 2022, we repurchased 341,783 shares for an aggregate purchase price of $14.9 million at an average share price of $43.55 under the November 2022 Repurchase Program. We did not repurchase any convertible senior notes during the year ended December 31, 2022. As of December 31, 2023, $92.9 million remained available under the November 2022 Repurchase Program. We are restricted from making any repurchases during the period between the execution of the Transaction Agreement and the closing of the proposed transaction without Informa’s approval.
Repurchased shares were recorded under the cost method and are reflected as treasury stock in the accompanying Consolidated Balance Sheets.
Convertible Senior Notes and Contractual Commitments
In December 2021, we issued $414 million in aggregate principal amount of 0.00% convertible senior notes due December 15, 2026, unless earlier repurchased by us or converted by the holder pursuant to their terms. Special interest, if any, is payable semiannually in arrears on June 15 and December 15 of each year.
The 2026 Notes are governed by an indenture between us, as issuer, and U.S. Bank Trust Company, National Association, as trustee. The 2026 Notes are unsecured and rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2026 Notes and equal in right of payment to our unsecured indebtedness that is not so subordinated.
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of common stock, at our election.
The 2026 Notes have an initial conversion rate of 7.6043 shares of common stock per $1,000 principal amount of 2026 Notes. This represents an initial effective conversion price of approximately $131.50 per share of common stock and 3,148,180 shares issuable upon conversion. Throughout the term of the 2026 Notes, the conversion rate may be adjusted upon the occurrence of certain events. As of December 31, 2023, no such adjustment has occurred. Holders of the 2026 Notes will not receive any cash payment representing accrued and unpaid interest, if any, upon conversion of a 2026 Note.
Proceeds from the 2026 Notes were utilized to retire $149.9 million of the 2025 Notes and for general corporate purposes.
In December 2020, we issued $201.3 million in aggregate principal amount of 0.125% convertible senior notes due December 15, 2025, unless earlier repurchased by us or converted by the holder pursuant to their terms. Interest is payable semiannually in arrears on June 15 and December 15 of each year, which commenced on June 15, 2021.
The 2025 Notes are governed by an indenture between us, as issuer, and U.S. Bank Trust Company, National Association, as trustee. The 2025 Notes are unsecured and rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the Notes and equal in right of payment to our unsecured indebtedness that is not so subordinated.
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of common stock, at our election.
The 2025 Notes have an initial conversion rate of 14.1977 shares of common stock per $1,000 principal amount of the Notes. This represents an initial effective conversion price of approximately $70.43 per share of common stock and 2,857,447 shares issuable upon conversion of the full aggregate principal amount of the 2025 Notes. Throughout the term of the 2025 Notes, the conversion rate may be adjusted upon the occurrence of certain events. As of December 31, 2023, no such adjustment has occurred. Holders of the 2025 Notes will not receive any cash payment representing accrued and unpaid interest, if any, upon conversion of a Note, except in limited circumstances. Accrued but unpaid interest will be deemed to be paid by cash, shares of our common stock or a combination of cash and shares of our common stock paid or delivered, as the case may be, to the holder upon conversion of the Notes.
After the induced conversion of $149.9 million aggregate principal amount of the 2025 Notes in December 2021, approximately $51 million of aggregate principal of 2025 Notes remain outstanding. After the purchase agreement of an aggregate of $48.3 million aggregate principal amount of the 2025 Notes in August 2023, approximately $3 million of aggregate principal of 2025 Notes remain outstanding. As of December 31, 2023, 43,163 shares were issuable upon conversion of the full aggregate principal amounts of such remaining 2025 Notes.
As of December 31, 2023, our principal contractual commitments consist of obligations under leases for office space and our Convertible Debt. The offices are leased under non-cancelable operating lease agreements that expire through 2029.
We and New TechTarget are obligated under the Transaction Agreement to use our reasonable best efforts to enter into a revolving credit facility or other senior lending facility, which shall be entered into prior to (but effective upon) the closing of the proposed transaction, with commitments of at least $250,000,000 to be used (together with our and our subsidiaries available cash on hand) to satisfy our obligations under the Notes and for general working capital purposes.
See Note 9 to our Consolidated Financial Statements for further information on the Notes and Note 10 to our Consolidated Financial Statements for further information with respect to our operating leases.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
