UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number: 1-33472

TECHTARGET, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		04-3483216 (I.R.S. Employer Identification No.)

275 Grove Street
Newton, Massachusetts 02466
(Address of principal executive offices) (zip code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

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

The registrant had 38,549,094 shares of Common Stock, $0.001 par value per share, outstanding as of October 31, 2011.

 

 

TABLE OF CONTENTS

Item				Page
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010			3
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)			4
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (unaudited)			5
		Notes to Consolidated Financial Statements			6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			31
Item 4.		Controls and Procedures			32
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings			33
Item 1A.		Risk Factors			33
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3.		Defaults upon Senior Securities			44
Item 4.		[Removed and reserved]			44
Item 5.		Other Information			44
Item 6.		Exhibits			44
		Signatures			45
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

TECHTARGET, INC.

		September 30,				December 31,
		2011				2010
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	25,301			$	32,584
Short-term investments			21,148				17,550
Accounts receivable, net of allowance for doubtful accounts of $1,185 and $1,026 as of September 30, 2011 and December 31, 2010, respectively			27,100				24,678
Prepaid expenses and other current assets			2,000				1,021
Deferred tax assets			1,245				729
Total current assets			76,794				76,562
Property and equipment, net			7,836				6,235
Long-term investments			9,844				—
Goodwill			92,528				92,382
Intangible assets, net of accumulated amortization			9,336				10,469
Deferred tax assets			7,907				7,985
Other assets			207				125
Total assets		$	204,452			$	193,758
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	3,662			$	3,797
Accrued expenses and other current liabilities			3,812				2,181
Accrued compensation expenses			1,006				1,979
Income taxes payable			—				226
Deferred revenue			7,948				6,603
Total current liabilities			16,428				14,786
Long-term liabilities:
Other liabilities			4,471				5,112
Total liabilities			20,899				19,898
Commitments and contingencies (Note 9)			—				—
Stockholders’ equity:
Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding			—				—
Common stock, $0.001 par value per share, 100,000,000 shares authorized, 43,660,157 shares issued and 37,802,279 shares outstanding at September 30, 2011 and 42,901,926 shares issued and 37,044,048 shares outstanding at December 31, 2010			44				43
Treasury stock			(35,343	)			(35,343	)
Additional paid-in capital			253,137				246,080
Accumulated other comprehensive (loss) income			(64	)			5
Accumulated deficit			(34,221	)			(36,925	)
Total stockholders’ equity			183,553				173,860
Total liabilities and stockholders’ equity		$	204,452			$	193,758

See accompanying notes.

TECHTARGET, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(Unaudited)
Revenues:
Online		$	21,763			$	18,878			$	66,294			$	58,065
Events			4,129				3,123				10,266				10,052
Total revenues			25,892				22,001				76,560				68,117
Cost of revenues:
Online(1)			5,547				4,921				16,873				15,043
Events(1)			1,488				1,149				3,607				3,459
Total cost of revenues			7,035				6,070				20,480				18,502
Gross profit			18,857				15,931				56,080				49,615
Operating expenses:
Selling and marketing(1)			10,182				8,984				28,997				27,815
Product development(1)			1,874				2,087				5,690				6,623
General and administrative(1)			3,105				3,567				10,362				11,671
Restructuring charge			—				—				384				—
Depreciation			692				592				2,001				1,759
Amortization of intangible assets			955				1,126				3,030				3,401
Total operating expenses			16,808				16,356				50,464				51,269
Operating income (loss)			2,049				(425	)			5,616				(1,654	)
Interest income, net			20				79				32				270
Income (loss) before provision for income taxes			2,069				(346	)			5,648				(1,384	)
Provision for income taxes			1,106				266				2,942				1,122
Net income (loss)		$	963			$	(612	)		$	2,706			$	(2,506	)
Net income (loss) per common share:
Basic		$	0.03			$	(0.01	)		$	0.07			$	(0.06	)
Net income (loss) per common share:
Diluted		$	0.02			$	(0.01	)		$	0.07			$	(0.06	)
Weighted average common shares outstanding:
Basic			38,511				43,209				38,261				42,878
Weighted average common shares outstanding:
Diluted			40,008				43,209				40,578				42,878
(1)  Amounts include stock-based compensation expense as follows:
Cost of online revenues		$	65			$	(38	)		$	197			$	136
Cost of events revenues			22				23				64				69
Selling and marketing			1,149				1,708				3,389				5,172
Product development			111				104				317				420
General and administrative			361				785				1,687				3,369

See accompanying notes.

TECHTARGET, INC.

		Nine Months Ended
		September 30,
		2011				2010
		(Unaudited)
Operating Activities:
Net income (loss)		$	2,706			$	(2,506	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			5,031				5,160
Provision for bad debt			286				74
Amortization of investment premiums			648				1,214
Stock-based compensation expense			5,654				9,166
Deferred tax benefit			(891	)			(1,805	)
Excess tax benefit — stock options			(708	)			(211	)
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable			(2,491	)			(6,266	)
Prepaid expenses and other current assets			(977	)			506
Other assets			(82	)			8
Accounts payable			(133	)			(120	)
Income taxes payable			478				1,260
Accrued expenses and other current liabilities			1,580				(472	)
Accrued compensation expenses			(973	)			539
Deferred revenue			1,085				111
Other liabilities			(641	)			1,936
Net cash provided by operating activities			10,572				8,594
Investing activities:
Purchases of property and equipment, and other assets			(3,596	)			(4,041	)
Purchases of investments			(31,436	)			(38,256	)
Proceeds from sales and maturities of investments			17,370				37,545
Acquisition of businesses			(2,049	)			(1,790	)
Net cash used in investing activities			(19,711	)			(6,542	)
Financing activities:
Excess tax benefit—stock options			708				211
Proceeds from exercise of stock options			1,148				663
Net cash provided by financing activities			1,856				874
Net (decrease) increase in cash and cash equivalents			(7,283	)			2,926
Cash and cash equivalents at beginning of period			32,584				20,884
Cash and cash equivalents at end of period		$	25,301			$	23,810
Supplemental disclosure of cash flow information:
Cash paid for interest		$	—			$	—
Cash paid for taxes		$	3,601			$	1,341

See accompanying notes.

TECHTARGET, INC.

1. Organization and Operations

TechTarget, Inc. (the “Company”) is a leading provider of specialized online content that brings together buyers and sellers of corporate information technology (“IT”) products. The Company sells customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases. Online content is specifically defined as those advertising and media offerings being available to users via internet websites as opposed to traditional “offline” media offerings available in print, radio and television advertising.

The Company’s integrated content platform consists of a network of more than 100 websites that are complemented with targeted in-person events. During the critical stages of the purchase decision process, these content offerings meet IT professionals’ needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high return on investment (“ROI”). As IT professionals have become increasingly specialized, they have come to rely on the Company’s sector-specific websites for purchasing decision support. The Company’s content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. Based upon the logical clustering of users’ respective job responsibilities and the marketing focus of the products that the Company’s customers are advertising, content offerings are currently categorized across nine distinct media groups: Application Architecture and Development; Channel; CIO/IT Strategy; Data Center and Virtualization Technologies; Business Applications and Analytics; Networking; Security; Storage; and TechnologyGuide.com.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include KnowledgeStorm, Inc., Bitpipe, Inc., TechTarget Securities Corporation, TechTarget Limited and TechTarget (HK) Limited (“TTGT HK”). KnowledgeStorm, Inc. and Bitpipe, Inc. are leading websites providing in-depth vendor generated content targeted toward corporate IT professionals. TechTarget Securities Corporation is a Massachusetts Securities Corporation incorporated in 2004. TechTarget Limited is a subsidiary doing business principally in the United Kingdom. TechTarget (HK) Limited is a subsidiary incorporated in Hong Kong in August 2010 in order to facilitate the Company’s activities in Asia-Pac. Additionally, as of October 1, 2010, through its wholly-owned subsidiary, TTGT HK, the Company effectively controls a variable interest entity (“VIE”), Keji Wangtuo Information Technology Co., Ltd, (“KWIT”), which was incorporated under the laws of the People’s Republic of China (“PRC”) on November 27, 2007.

PRC laws and regulations prohibit or restrict foreign ownership of Internet-related services and advertising businesses. To comply with these foreign ownership restrictions, the Company operates its websites and provides online advertising services in the PRC through this VIE. The Company has entered into certain exclusive agreements with the VIE and its shareholders through TTGT HK, which obligate TTGT HK to absorb the risk of loss from the VIE’s activities and entitles TTGT HK to receive their residual returns. In addition, the Company has entered into certain agreements with the authorized parties through TTGT HK, including Management and Consulting Services, Voting Proxy, Equity Pledge and Option Agreements.

Based on these contractual arrangements, the Company consolidates the VIE as required by Accounting Standards Codification (“ASC”) subtopic 810-10 (“ASC 810-10”), Consolidation: Overall, because the Company holds all the variable interests of the VIE through TTGT HK, which is the primary beneficiary of the VIE. Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIE through the aforementioned agreements, whereby the equity holders of the VIEs effectively assigned all of their voting rights underlying their equity interest in the VIE to TTGT HK. In addition, through the other aforementioned agreements, the Company demonstrates its ability and intention to continue to exercise the ability to obtain substantially all of the profits and absorb all of the expected losses of the VIE. All significant intercompany accounts and transactions between the Company, its subsidiaries, and the VIE have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (generally accepted accounting principles, or “GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of results to be expected for any other interim periods or for the full year. The information included in these consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Reclassifications

In 2011, the Company changed the manner in which it allocates real estate facilities costs to align with actual departmental headcount. Previously, these costs were all included as a part of general and administrative expenses. Amounts in the prior years’ financial statements have been reclassified to conform to the current year presentation. In the three months ended September 30, 2010 this resulted in additional online cost of sales, events cost of sales, sales and marketing and product development expense of $347, $65, $416 and $140, respectively, offset by a decrease in general and administrative expense of $968. In the nine months ended September 30, 2010 this resulted in additional online cost of sales, events cost of sales, sales and marketing and product development expense of $1.1 million, $0.2 million, $1.4 million and $0.5 million, respectively, offset by a decrease in general and administrative expense of $3.2 million.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company generates substantially all of its revenue from the sale of targeted advertising campaigns that are delivered via its network of websites and events. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

Although each of the Company’s online media offerings can be sold separately, the majority of the Company’s online media sales involve multiple online offerings, which are described in more detail below. During fiscal 2010 and prior, because objective evidence of fair value did not exist for all elements in the Company’s bundled advertising campaigns, no allocation could be made among the various elements, so the Company recognized revenue on all units of accounting ratably over the term of the arrangement. In September 2009, the FASB ratified Accounting Standards Update (“ASU”) 2009-13, Revenue Arrangements with Multiple Deliverables, which updates the existing multiple-element revenue arrangements guidance included in ASC 605-25. ASU 2009-13 requires companies to allocate the overall consideration to each deliverable by using a best estimate of selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third party evidence of selling price. The Company adopted the new standard, beginning on January 1, 2011, on a prospective basis. Because neither vendor-specific objective evidence of fair value nor third party evidence of selling price exists for all elements in the Company’s bundled advertising campaigns, the Company uses an estimated selling price which represents management’s best estimate of the stand-alone selling price of deliverables for each deliverable in an arrangement. The Company uses the relative selling price method to allocate consideration at the inception of the arrangement to each deliverable in a multiple element arrangement. The relative selling price method allocates any discount in the arrangement proportionately to each deliverable on the basis of the deliverable’s best estimated selling price. Revenue is then recognized as delivery occurs. For content posted on websites, revenue recognition is generally over the period the content is available.

The Company has concluded that adoption of this standard did not materially affect results in the first nine months of 2011, nor is it expected to materially affect future periods.

Event Sponsorships. Revenue from vendor-sponsored events, whether sponsored exclusively by a single vendor or in a multi-vendor sponsored event, is recognized upon completion of the event in the period the event occurs. The majority of the Company’s events are free to qualified attendees; however, certain events are based on a paid attendee model. The Company recognizes revenue for paid attendee events upon completion of the event and receipt of payment from the attendee. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

Online Media. Revenue for specific online media offerings is recognized as follows:

•

White Papers. White paper revenue is recognized ratably over the period in which the white paper is available on the Company’s websites.

•

Webcasts, Podcasts, Videocasts and Virtual Trade Shows. Webcast, podcast, videocast, virtual trade show and similar content revenue is recognized ratably over the period in which the webcast, podcast, videocast or virtual trade show is available on the Company’s websites.

•

Custom Media. Custom media revenue is recognized ratably over the period in which the custom media is available on the Company’s websites.

•

Promotional E-mails and E-newsletters. Promotional e-mail revenue is recognized ratably over the period in which the related content is available on its websites because promotional e-mails do not have standalone value from the related content. E-newsletter revenue is recognized in the period in which the e-newsletter is sent.

•

List Rentals. List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members.

•

Banners. Banner revenue is recognized in the period in which the banner impressions occur.

•

Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed. For certain third party agreements where the Company is the primary obligor, revenue is recognized on a gross basis in the period in which the services are performed.

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

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable and accounts payable. The carrying value of these instruments approximates their estimated fair values.

Long-lived Assets

Long-lived assets consist primarily of property and equipment, goodwill and other intangible assets. A specifically identified intangible asset must be recorded as a separate asset from goodwill if either of the following two criteria is met: (1) the intangible asset acquired arises from contractual or other legal rights; or (2) the intangible asset is separable. Accordingly, intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired.

Goodwill and indefinite-lived intangible assets are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from one to nine years, using methods of amortization that are expected to reflect the estimated pattern of economic use, and are reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable. The Company performs its annual test of impairment of goodwill as of December 31st of each year and whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. Based on this evaluation, the Company believes that, as of each of the balance sheet dates presented, none of the Company’s goodwill or other long-lived assets was impaired. The Company did not have any intangible assets with indefinite lives as of September 30, 2011 or December 31, 2010.

Internal-Use Software and Website Development Costs

The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to internal-use software. The estimated useful life of costs capitalized is evaluated for each specific project. Capitalized internal-use software and website development costs are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss shall be recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. The Company capitalized internal-use software and website development costs of $1.0 million and $0.6 million for the three months ended September 30, 2011 and 2010, respectively, and $2.6 million and $1.6 million for the nine months ended September 30, 2011 and 2010, respectively.

Income Taxes

The Company’s deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. If required, a valuation allowance is established against net deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recognizes any interest and penalties related to uncertain tax positions in income tax expense.

Stock-Based Compensation

At September 30, 2011, the Company had two stock-based employee compensation plans which are more fully described in Note 11. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized in the Statement of Operations on a straight-line basis over the vesting period of the award or using the accelerated method if the award is contingent upon performance goals. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock option awards.

Net Income (Loss) Per Share

Basic earnings per share is computed based on the weighted average number of common shares and vested restricted stock awards outstanding during the period. Because the holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents, the Company does not consider these awards to be participating securities that should be included in its computation of earnings per share under the two-class method. Diluted earnings per share is computed using the weighted average number of common shares and vested restricted stock awards outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense and assumed tax benefit of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-14, Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-14 amends guidance included within Accounting Standards Codification (“ASC”) Topic 985-605 to exclude tangible products containing software components and non-software components that function together to deliver the product’s essential functionality. Entities that sell joint hardware and software products that meet this scope exception will be required to follow the guidance of ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application are also permitted. The Company determined that adopting the provisions of ASU 2009-14 did not impact its consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805), which specifies that if a public entity presents financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the year occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosure. The ASU is effective for business combinations for which the acquisition date is on or after the annual reporting period beginning on or after December 15, 2010. The adoption of this standard did not affect the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"), which provides common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Early application is prohibited. The Company is currently assessing the potential impact of this standard but does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires entities to present reclassification adjustments included in other comprehensive income on the face of the financial statements and allows entities to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It also eliminates the option for entities to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. For public companies, ASU 2011-05 is effective for fiscal years (and interim periods within those years) beginning after December 15, 2011, with earlier adoption permitted. ASU 2011-05 impacts disclosure only and, therefore, is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASC update No. 2010-28, Intangibles-Goodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts a consensus of the FASB Emerging Issues Task Force, which modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. The qualitative factors that an entity should consider when evaluating whether it is more likely than not that a goodwill impairment exists are consistent with the existing guidance for determining whether an impairment exists between annual tests. The adoption of this update did not have a material impact on the Company’s financial statements. This update was effective for fiscal periods beginning after December 15, 2010.

In September 2011, the FASB issued ASU 2011-08: Testing for Goodwill Impairment, which amends current goodwill impairment testing guidance by providing entities with an option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently assessing the potential impact of this standard but does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements.

3. Fair Value Measurements

The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents, and short and long-term investments. The fair value of these financial assets was determined based on three levels of input as follows:

	•		Level 1. Quoted prices in active markets for identical assets and liabilities;
	•		Level 2. Observable inputs other than quoted prices in active markets; and
	•		Level 3. Unobservable inputs.

The fair value hierarchy of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

						Fair Value Measurements at Reporting Date Using
						Quoted Prices
						in Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
		September 30,				Assets				Inputs				Inputs
		2011				(Level 1)				(Level 2)				(Level 3)
		(Unaudited)
Money market funds(1)		$	9,823			$	9,823			$	—			$	—
Short-term investments(2)			21,148				—				21,148				—
Long-term investments(2)			9,844				—				9,844				—
Total		$	40,815			$	9,823			$	30,992			$	—

						Fair Value Measurements at Reporting Date Using
						Quoted Prices
						in Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
		December 31,				Assets				Inputs				Inputs
		2010				(Level 1)				(Level 2)				(Level 3)
Money market funds(1)		$	23,375			$	23,375			$	—			$	—
Short-term investments(2)			17,550				—				17,550				—
Total		$	40,925			$	23,375			$	17,550			$	—

4. Cash, Cash Equivalents and Investments

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Cash equivalents are carried at cost, which approximates their fair market value. Cash and cash equivalents consisted of the following:

		September 30,				December 31,
		2011				2010
		(Unaudited)
Cash		$	15,478			$	9,209
Money market funds			9,823				23,375
Total cash and cash equivalents		$	25,301			$	32,584

The Company’s short and long-term investments are accounted for as available for sale securities. These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. The unrealized gain (loss), net of taxes, was $10 and $(5) as of September 30, 2011 and December 31, 2010, respectively. Realized gains and losses on the sale of these investments are determined using the specific identification method. There were no realized gains or losses during the three or nine months ended September 30, 2011 or 2010.

Short and long-term investments consisted of the following:

		September 30, 2011
						Gross				Gross
						Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
		(Unaudited)
Short and long-term investments:
Municipal bonds		$	30,976			$	27			$	(11	)		$	30,992
Total short and long-term investments		$	30,976			$	27			$	(11	)		$	30,992

		December 31, 2010
						Gross				Gross
						Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
Short and long-term investments:
Government agency bonds		$	2,008			$	1			$	—			$	2,009
Municipal bonds			15,550				2				(11	)			15,541
Total short and long-term investments		$	17,558			$	3			$	(11	)		$	17,550

The Company had eight debt securities in an unrealized loss position at September 30, 2011. All of these securities have been in such a position for less than 12 months; the unrealized loss on those securities was approximately $11 and the fair value was $15.9 million. As of September 30, 2011, the Company does not consider these investments to be other-than-temporarily impaired. All income generated from these investments is recorded as interest income.

5. Acquisitions

On April 26, 2011 the Company acquired the websites, product offerings, and events associated with Computer Weekly and its sister channel-targeted brand, MicroScope, from Reed Business Information Limited for $2.0 million in cash plus the payment of approximately $0.4 million in restructuring costs relating to redundancy costs of Computer Weekly employees not brought over as part of the acquisition.

In connection with this acquisition, the Company’s preliminary allocation of purchase price is approximately $40 of net tangible assets, $147 of goodwill and $1.9 million of intangible assets related to customer relationships, a member database, a non-compete agreement and trade names with estimated useful lives ranging from two to five years.

The estimated fair value of the $1.9 million of acquired intangible assets is assigned as follows:

						Estimated Fair
		Useful Life				Value (in 000’s)
Customer relationship		60 months				$	825
Member database		60 months					512
Non-compete agreement		24 months					100
Trade name		60 months					430
Total intangible assets						$	1,867

The Company engaged a third party valuation specialist to assist management in determining the fair value of the intangible assets of the Computer Weekly and MicroScope businesses. To value the customer relationship assets, an income approach was used, specifically a variation of the discounted cash-flow method known as the multi-period excess earnings method. The projected net cash flows were discounted using a discount rate of 28.3%. To value the member database, a replacement cost approach was used, specifically a calculation of costs to acquire new members based on the cost to acquire new members in 2010 divided by new members acquired. Additionally, the present value of the sum of projected lost profits was added to the calculated replacement cost to calculate the total fair value of the member database asset. To value the non-compete agreement, a comparative business valuation method was used. Based on a non-compete term of 24 months, management projected net cash flows for the Company with and without the non-compete agreement in place. The present value of the sum of the difference between the net cash flows with and without the non-compete agreement in place was calculated, based on a discount rate of 28.3%. To value the trade name intangible asset, a relief from royalty method was used to estimate the pre-tax royalty savings to the Company related to the Computer Weekly and MicroScope trade names. The projected net cash flows from the pre-tax royalty savings were tax affected using an effective rate of 26% and then discounted using a discount rate of 28.3% to calculate the value of the trade name intangible asset.

6. Intangible Assets

Intangible assets subject to amortization as of September 30, 2011 and December 31, 2010 consist of the following:

				As of September 30, 2011
		Estimated		Gross
		Useful Lives		Carrying				Accumulated
		(Years)		Amount				Amortization				Net
		(Unaudited)
Customer, affiliate and advertiser relationships		1 - 9		$	8,982			$	(4,178	)		$	4,804
Developed websites		3 - 6			5,400				(3,975	)			1,425
Trademark, trade name and domain name		1 - 7			1,970				(894	)			1,076
Proprietary user information database and Internet traffic		3 - 5			5,222				(3,410	)			1,812
Non-compete agreements		1 - 3			547				(328	)			219
Total intangible assets				$	22,121			$	(12,785	)		$	9,336

				As of December 31, 2010
		Estimated		Gross
		Useful Lives		Carrying				Accumulated
		(Years)		Amount				Amortization				Net
Customer, affiliate and advertiser relationships		1 - 9		$	12,879			$	(7,654	)		$	5,225
Developed websites		3 - 6			5,400				(3,300	)			2,100
Trademark, trade name and domain name		1 - 7			2,373				(1,526	)			847
Proprietary user information database and Internet traffic		3 - 5			5,400				(3,354	)			2,046
Non-compete agreements		1 - 3			1,573				(1,322	)			251
Total intangible assets				$	27,625			$	(17,156	)		$	10,469

Intangible assets are amortized over their estimated useful lives, which range from one to nine years, using methods of amortization that are expected to reflect the estimated pattern of economic use. The remaining amortization expense will be recognized over a weighted-average period of approximately 2.3 years. Amortization expense was $1.0 million and $1.1 million for the three month periods ended September 30, 2011 and 2010, respectively, and $3.0 million and $3.4 million for the nine months ended September 30, 2011 and 2010, respectively. Amortization expense is recorded within operating expenses as the intangible assets consist of customer-related assets and website traffic that the Company considers to be in support of selling and marketing activities. The Company wrote off $7.5 million of fully amortized intangible assets to date in 2011.

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

		Amortization
Years Ending December 31:		Expense
		(Unaudited)
2011 (October 1st – December 31st)		$	946
2012			3,351
2013			1,800
2014			1,405
2015			1,157
Thereafter			677
		$	9,336

7. Net Income (Loss) Per Common Share

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per common share is as follows:

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(Unaudited)
Numerator:
Net income (loss)		$	963			$	(612	)		$	2,706			$	(2,506	)
Denominator:
Basic:
Weighted average shares of common stock outstanding			38,510,512				43,209,433				38,260,943				42,877,631
Diluted:
Weighted average shares of common stock outstanding			38,510,512				43,209,433				38,260,943				42,877,631
Effect of potentially dilutive shares(1)			1,497,772				—				2,316,833				—
Total weighted average shares of common stock outstanding			40,008,284				43,209,433				40,577,776				42,877,631
Net Income (Loss) Per Common Share:
Basic net income (loss) per common share		$	0.03			$	(0.01	)		$	0.07			$	(0.06	)
Net Income (Loss) Per Common Share:
Diluted net income (loss) per common share		$	0.02			$	(0.01	)		$	0.07			$	(0.06	)

8. Credit Facility

The Company’s $5.0 million revolving credit facility was amended in August 2011, extending its term and adjusting certain other financial terms and covenants. Unless earlier payment is required by an event of default, all principal and unpaid interest will be due and payable on August 31, 2016. At the Company’s option, the Revolving Credit Facility (“Credit Agreement”) bears interest at either the prime rate less 1.00% or the London Interbank Offered Rate (“LIBOR”) plus the applicable LIBOR margin. The applicable LIBOR margin is based on the ratio of total funded debt to earnings before interest, other income and expense, income taxes, depreciation, and amortization (“EBITDA”) for the preceding four fiscal quarters. As of September 30, 2011, the applicable LIBOR margin, which was the operative rate during the quarter ended September 30, 2011, was 1.25%.

The Company is also required to pay an unused line fee on the daily unused amount of its Revolving Credit Facility at a per annum rate based on the ratio of total funded debt to EBITDA for the preceding four fiscal quarters. As of September 30, 2011, the per annum unused line fee rate was 0.20%.

At September 30, 2011 and December 31, 2010 there were no amounts outstanding under this Credit Agreement. There was a $1.5 million standby letter of credit related to the Company’s corporate headquarters lease that was outstanding at September 30, 2011, bringing our available borrowings on the $5.0 million facility to $3.5 million.

Borrowings under the Credit Agreement are collateralized by a security interest in substantially all assets of the Company. Covenants governing the Credit Agreement include the maintenance of certain financial ratios. At September 30, 2011 the Company was in compliance with all covenants under the Credit Agreement.

9. Commitments and Contingencies

Operating Leases

The Company conducts its operations in leased office facilities under various non-cancelable operating lease agreements that expire through February 2020. Future minimum lease payments under the Company’s non-cancelable operating leases at September 30, 2011 are as follows:

		Minimum Lease
Years Ending December 31:		Payments
		(Unaudited)
2011 (October 1st – December 31st)		$	1,030
2012			4,084
2013			3,170
2014			3,172
2015			3,191
Thereafter			13,957
		$	28,604

The Company has an irrevocable standby letter of credit outstanding in the aggregate amount of $1.5 million. This letter of credit supports the lease the Company entered into in 2009 for its corporate headquarters. This letter of credit extends, subject to certain reductions, annually through February 28, 2020 unless notification of termination is received.

Net Worth Tax Contingency

In late March 2010, the Company received a letter from the Department of Revenue of the Commonwealth of Massachusetts (the “MA DOR”) requesting documentation demonstrating that TechTarget Securities Corporation (“TSC”), a wholly-owned subsidiary of the Company, has been classified by the MA DOR as a Massachusetts security corporation. Following subsequent correspondence with the MA DOR and a settlement conference on March 22, 2011, the Company received on July 16, 2011 a Notice of Assessment from MA DOR for 2006 and 2007 in the amount of approximately $198 (which amount included all interest and penalties to date) with respect to additional excise taxes on net worth related to TSC. Based on the Company’s previous assessment that it was probable that the MA DOR would require an adjustment to correct TSC’s tax filings such that it will be treated as a Massachusetts business corporation for the applicable years, for the year ended December 31, 2010, the Company recorded a liability of approximately $200, representing its best estimate at that time of the potential net worth tax exposure. The tax benefits available to a Massachusetts security corporation are comprised of (i) lower income tax rate (1.32% vs. 9.5%) and (ii) exemption from the 0.26% excise tax on net worth. On August 17, 2011, the Company filed Applications for Abatement with the MA DOR and intends to continue to dispute the assessment and believes it has meritorious defenses which it intends to vigorously assert. There were no changes to the net worth tax reserve assessment as of September 30, 2011.

Litigation

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At September 30, 2011 and December 31, 2010, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

10. Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period, except those resulting from investments by stockholders and distributions to stockholders. For the three and nine months ended September 30, 2011 and 2010 the Company’s comprehensive income (loss) is as follows:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
		(Unaudited)
Net income (loss)		$	963			$	(612	)		$	2,706			$	(2,506	)
Other comprehensive income (loss):
Unrealized gain (loss) on investments (net of tax effect of $7, $(13), $12 and $(44), respectively)			14				(27	)			23				(72	)
Unrealized (loss) gain on foreign currency exchange			(8	)			3				(92	)			(3	)
Other comprehensive income (loss)			6				(24	)			(69	)			(75	)
Total comprehensive income (loss)		$	969			$	(636	)		$	2,637			$	(2,581	)

11. Stock-Based Compensation

Stock Option Plans

In September 1999, the Company approved a stock option plan (the “1999 Plan”) that provides for the issuance of up to 12,384,646 shares of common stock incentives. The 1999 Plan provides for the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock grants. These incentives may be offered to the Company’s employees, officers, directors, consultants, and advisors, as defined. ISOs may not be granted at less than fair market value on the date of grant, as determined by the Company’s Board of Directors (the “Board”). Each option shall be exercisable at such times and subject to such terms as determined by the Board; grants generally vest over a four year period and expire no later than ten years after the grant date.

In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”), which was approved by the stockholders and became effective upon the consummation of the Company’s IPO in May 2007. Effective upon the consummation of the IPO, no further awards were made pursuant to the 1999 Plan, but any outstanding awards under the 1999 Plan will remain in effect and will continue to be subject to the terms of the 1999 Plan. The 2007 Plan allows the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock and other awards. Under the 2007 Plan, stock options may not be granted at less than fair market value on the date of grant, and grants generally vest over a four year period. Stock options granted under the 2007 Plan expire no later than ten years after the grant date. The Company has reserved an aggregate of 2,911,667 shares of common stock for issuance under the 2007 Plan plus an additional annual increase to be added automatically on January 1 of each year, beginning on January 1, 2008, equal to the lesser of (a) 2% of the outstanding number of shares of common stock (on a fully-diluted basis) on the immediately preceding December 31 and (b) such lower number of shares as may be determined by the Company’s compensation committee. The number of shares available for issuance under the 2007 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. Generally, shares that are forfeited or cancelled from awards under the 2007 Plan also will be available for future awards. In addition, shares subject to stock options returned to the 1999 Plan, as a result of their expiration, cancellation or termination, are automatically made available for issuance under the 2007 Plan. As of September 30, 2011 a total of 1,342,042 shares were available for grant under the 2007 Plan.

Accounting for Stock-Based Compensation

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The Company calculated the fair values of the options granted using the following estimated weighted-average assumptions:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
		(Unaudited)
Expected volatility			79.83	%			*				79.41	%			78	%
Expected term		6.25 years					*			6.25 years				6.25 years
Risk-free interest rate			1.54	%			*				1.92	%			2.85	%
Expected dividend yield			0.00	%			*				0.00	%			0.00	%
Weighted-average grant date fair value per share		$	4.39				*			$	4.77			$	3.89

As there was no public market for the Company’s common stock prior to the Company’s IPO in May 2007, and limited historical information on the volatility of its common stock since the date of the Company’s IPO, the Company determined the volatility for options granted in the three and nine months ended September 30, 2011 and 2010 based on an analysis of the historical volatility of the Company’s stock and reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock and the peer group of companies for a period equal to the expected life of the option. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied estimated annual forfeiture rates of 3.6% and 2% for the nine months ended September 30, 2011 and 2010, respectively based on its historical forfeiture experience in determining the expense recorded in those periods.

A summary of the stock option activity under the Company’s stock option plan for the nine months ended September 30, 2011 is presented below:

										Weighted-
						Weighted-				Average
						Average				Remaining
		Options				Exercise Price				Contractual				Aggregate
Year-to-Date Activity		Outstanding				Per Share				Term in Years				Intrinsic Value
		(Unaudited)
Options outstanding at December 31, 2010			7,095,090			$	6.41
Granted			40,000				6.84
Exercised			(200,285	)			5.73
Forfeited			(51,836	)			5.69
Cancelled			(51,000	)			9.85
Options outstanding at September 30, 2011			6,831,969			$	6.41				4.9			$	5,377
Options exercisable at September 30, 2011			5,953,999			$	6.45				4.5			$	5,146
Options vested or expected to vest at September 30, 2011 (1)			6,764,541			$	6.42				4.9			$	5,359

During the nine months ended September 30, 2011 and 2010, the total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $482 and $631, respectively, and the total amount of cash received from exercise of these options was $1,148 and $663, respectively. The total grant date fair value of stock options granted after January 1, 2006 that vested during the nine months ended September 30, 2011 and 2010 was $1.7 million and $4.2 million, respectively.

Restricted Stock Awards

Restricted stock awards are valued at the market price of a share of the Company’s common stock on the date of grant. A summary of the restricted stock award activity under the 2007 Stock Plan for the nine months ended September 30, 2011 is presented below:

						Weighted-Ave.
						Grant Date
						Fair Value				Aggregate Intrinsic
Year-to-Date Activity		Shares				Per Share				Value
		(Unaudited)
Nonvested outstanding at December 31, 2010			2,693,453			$	5.92
Granted			85,217				7.27
Vested			(513,839	)			4.68
Forfeited			(119,640	)			6.98
Nonvested outstanding at September 30, 2011			2,145,191			$	5.69			$	12,249

The total grant-date fair value of restricted stock awards that vested during the nine months ended September 30, 2011 and 2010 was $2.4 million and $3.5 million, respectively.

12. Stockholders’ Equity

Reserved Common Stock

As of September 30, 2011, the Company has reserved 11,037,452 shares of common stock for options outstanding and available for grant under stock option plans.

Warrants

In connection with an acquisition in May 2000, the Company issued to the seller a warrant to purchase 40,625 shares of common stock at a price of $2.36 per share. In 2007, the seller exercised warrants to purchase 30,981 shares of common stock using the conversion rights in the warrants. As result of the exercise using the conversion rights, the Company issued 26,024 shares of common stock to the seller and cancelled the 4,957 shares received in lieu of payment of the exercise price. In 2008, the seller exercised additional warrants to purchase 8,375 shares of common stock using the conversion rights in the warrants. As a result of the exercise using the conversion rights, the Company issued 6,886 shares of common stock to the seller and cancelled the 1,489 shares received in lieu of payment of the exercise price. The balance of the unexercised portion of the warrant expired in the second quarter of 2010.

13. Income Taxes

The Company’s effective tax rate was 52% and (81)% for the nine months ended September 30, 2011 and 2010, respectively. The provision for income taxes for the nine months ended September 30, 2011 includes a discrete tax expense of $65 related to a state tax assessment for a prior period. The effective tax rate excluding the discrete tax expense was 51% for the nine months ended September 30, 2011. The change in the effective tax rate excluding the discrete tax expense was as a result of applying the provision of ASC 740, Income Taxes, as it relates to interim periods. For the nine months ended September 30, 2011, the Company calculated the provision for income taxes using a forecasted tax rate for the year ended December 31, 2011. For the nine months ended September 30, 2010, due to net operating losses, the Company calculated the provision for income taxes using a period-to-date approach. The Company recognized interest and penalties totaling $21 in income tax expense in the nine months ended September 30, 2011.

For the year ended December 31, 2010, the Company had recorded a tax reserve of approximately $400 for the potential state income tax liability arising from the difference between the income tax rates applicable for security corporations and business corporations in Massachusetts, relating to the matter described in Note 9. In connection with such matter, on July 21, 2011, the Company received a Notice of Assessment from MA DOR for 2006 and 2007 in the amount of approximately $345 (which amount included all interest and penalties to date) with respect to additional income taxes related to TechTarget, Inc. The Company increased the reserve assessment to reflect additional interest accrued through the third quarter of 2011. The balance of the reserve assessment as of September 30, 2011 was $426. On August 17, 2011, the Company filed Applications for Abatement with the MA DOR and intends to continue to dispute the assessment and believes it has meritorious defenses which it intends to vigorously assert.

Tax years 2007 through 2010 are subject to examination by the federal and state taxing authorities. There are no income tax examinations currently in process with the exception of the TSC matter noted above related to the MA DOR.

14. Segment Information

The Company views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations and how its CEO and President review results and make decisions on how to allocate resources and assess performance.

Geographic Data

Net sales to unaffiliated customers by geographic area were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(Unaudited)
North America		$	23,508			$	20,913			$	70,174			$	64,675
International			2,384				1,088				6,386				3,442
Total		$	25,892			$	22,001			$	76,560			$	68,117

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. In this discussion and analysis, dollar, share and per share amounts are not rounded to thousands unless otherwise indicated. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly under the heading “Risk Factors.”

Overview

Background

We are a leading provider of specialized online content that brings together buyers and sellers of corporate information technology ("IT”) products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases.

Our integrated content platform consists of a network of approximately 100 websites that we complement with targeted in-person events. During the critical stages of the purchase decision process, these content offerings meet IT professionals’ needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high Return on Investment ("ROI”). As IT professionals have become increasingly specialized, they have come to rely on our sector-specific websites for purchasing decision support. Our content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. Based upon the logical clustering of our users’ respective job responsibilities and the marketing focus of the products that our customers are advertising, we currently categorize our content offerings across nine distinct media groups: Application Architecture and Development; Channel; CIO/IT Strategy; Data Center and Virtualization Technologies; Business Applications and Analytics; Networking; Security; Storage; and TechnologyGuide.com.

Recent Acquisition

On April 26, 2011 we announced that we had completed the acquisition of the websites, product offerings, and events associated with Computer Weekly and its sister channel-targeted brand, MicroScope, from Reed Business Information Limited. Computer Weekly, through its websites and events (and print properties, which were not continued), has served UK Managers, Directors and CIOs monitoring the technology landscape, and the advertisers looking to reach them. Computer Weekly and MicroScope also serve UK IT decision makers by bringing technology news and IT management focused content. These two websites will complement our established offerings in the region, including SearchDataManagement.co.uk, SearchNetworking.co.uk, SearchSecurity.co.uk, SearchStorage.co.uk, and SearchVirtualDataCentre.co.uk, by giving advertisers new ways to reach key UK and European IT decision makers.

Sources of Revenues

We sell advertising programs to IT vendors targeting a specific audience within a particular IT sector or sub-sector. We maintain multiple points of contact with our customers to provide support throughout their organizations and the sales cycle. As a result, our customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience. There are multiple factors that can impact our customers’ advertising objectives and spending with us, including but not limited to, product launches, increases or decreases to their advertising budgets, the timing of key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads. Our services are generally delivered under short-term contracts that run for the length of a given advertising program, typically less than six months.

We generate substantially all of our revenues from the sale of targeted advertising campaigns that we deliver via our network of websites and in-person events.

Online. The majority of our revenue is derived from the delivery of our online offerings. Online revenue represented approximately 84% and 86% of total revenues for the three months ended September 30, 2011 and 2010, and approximately 87% and 85% of total revenues for the nine months ended September 30, 2011 and 2010. We expect the majority of our revenues to be derived through the delivery of online offerings for the foreseeable future. As a result of our customers’ advertising objectives and preferences, the specific allocation of online advertising offerings sold and delivered by us, on a period by period basis, can fluctuate.

Through our websites we sell a variety of online media offerings to connect IT vendors to IT professionals. Our lead generation offerings allow IT vendors to capture qualified sales leads from the distribution and promotion of content to our audience of IT professionals. Our branding offerings provide IT vendors exposure to targeted audiences of IT professionals actively researching information related to their products and services.

Our branding offerings include banners and e-newsletters. Banner advertising can be purchased on specific websites within our network. We also offer the ability to advertise in e-newsletters focused on key site sub-topics across our portfolio of websites. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.

Our lead generation offerings include the following:

•

White Papers. White papers are technical documents created by IT vendors to describe business or technical problems that are addressed by the vendors’ products or services. IT vendors pay us to have their white papers distributed to our users and receive targeted promotions on our relevant websites. Prior to viewing white papers, our registered members and visitors supply their corporate contact and qualification information and agree to receive further information from the vendor. The corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software.

•

Webcasts, Podcasts, Videocasts, and Virtual Trade Shows. IT vendors pay us to sponsor and host webcasts, podcasts, videocasts, virtual trade shows and similar content that bring informational sessions directly to attendees’ desktops and, in the case of podcasts, directly to their mobile devices. As is the case with white papers, our users supply their corporate contact and qualification information to the webcast, podcast, videocast or virtual trade show sponsor when they view or download the content. Sponsorship includes access to the registrant information and visibility before, during and after the event.

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Promotional E-mails. IT vendors pay us to further target the promotion of their white papers, webcasts, videocasts, podcasts or similar media by including their content in our periodic e-mail updates to the relevant registered users of our websites. Users who have voluntarily registered on our websites receive an e-mail update from us when vendor content directly related to their interests is listed on our sites.

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List Rentals. We also offer IT vendors the ability to message relevant registered members on topics related to their interests. IT vendors can rent our e-mail and postal lists of registered members using specific criteria such as company size, geography or job title.

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Contextual Advertising. Our contextual advertising programs associate IT vendor white papers, webcasts, podcasts, virtual trade shows or other content on a particular topic with our related sector-specific content. IT vendors have the option to purchase exclusive sponsorship of content related to their product or category.

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Third Party Revenue Sharing Arrangements. We have arrangements with certain third parties, including for the licensing of our online content, for the renting of our database of opted-in e-mail subscribers and for which advertising from customers of certain third parties is made available to our website visitors. In each of these arrangements we are paid a share of the resulting revenue.

Events. Events revenue represented approximately 16% and 14% of total revenues for the three months ended September 30, 2011 and 2010, and approximately 13% and 15% of total revenues for the nine months ended September 30, 2011 and 2010. Most of our media groups operate revenue generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day conferences, single-day seminars and custom events. Multi-day conferences provide independent expert content for our attendees and allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees. We also hold single-day seminars on various topics in major cities. These seminars provide independent content on key sub-topics in the sectors we serve, are free to qualified attendees, and offer multiple vendors the ability to interact with specific, targeted audiences actively focused on buying decisions. Our custom events differ from our conferences and seminars in that they are exclusively sponsored by a single IT vendor, and the content is driven primarily by the sole sponsor.

Cost of Revenues, Operating Expenses and Other

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

Cost of Online Revenue. Cost of online revenue 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 list rental offerings; stock-based compensation expenses; facilities and other related overhead.

Cost of Events Revenue. Cost of events revenue consists primarily of: facility expenses, including food and beverages for the event attendees as well as office space; salaries and related personnel costs; event speaker expenses; stock-based compensation expenses; and other related overhead.

Selling and Marketing. Selling and marketing expense consists primarily of: salaries and related personnel costs; sales commissions; travel, lodging and other out-of-pocket expenses; stock-based compensation expenses; facilities and related overhead. Sales commissions are recorded as expense when earned by the employee, based on recorded revenue.

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

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

Depreciation. Depreciation expense consists of the depreciation of our property and equipment. Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives, ranging from three to five years, with the exception of leasehold improvements, which are depreciated over the shorter of their useful life or the remaining duration of the lease.

Amortization of Intangible Assets. Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives, which range from one to nine years, using methods that are expected to reflect the estimated pattern of economic use.

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

Application of Critical Accounting Policies and Use of Estimates

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

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

Revenue Recognition

We generate substantially all of our revenue from the sale of targeted advertising campaigns that we deliver via our network of websites and in-person events. In all cases, we recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

Although each of our online media offerings can be sold separately, most of our online media sales involve multiple online offerings. Because objective evidence of fair value does not exist for all elements in our bundled advertising campaigns, we use a best estimate of selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third party evidence of selling price. We apply a relative selling price method to allocate arrangement consideration at the inception of the arrangement to each deliverable in a multiple element arrangement. Revenue is then recognized as delivery occurs. For content posted on websites, revenue recognition is generally over the period the asset is available.

Event Sponsorships. We sell our events separately from our other service offerings and recognize sponsorship revenue from events in the period in which the event occurs. The majority of our events are free to qualified attendees; however, certain events are based on a paid attendee model. We recognize revenue for paid attendee events upon completion of the event and receipt of payment from the attendee. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

Online Media. We recognize revenue from our specific online media offerings as follows when these items are sold separately:

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White Papers. We recognize white paper revenue ratably over the period in which the white paper is available on our websites.

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Webcasts, Podcasts, Videocasts and Virtual Trade Shows. We recognize webcast, podcast, videocast, virtual trade show and similar content offerings revenue ratably over the period in which the webcast, podcast, videocast, virtual trade show or similar content offering is available on our websites.

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Promotional E-mails and E-newsletters. We recognize promotional e-mail revenue ratably over the period in which the related content asset is available on our websites because promotional e-mails do not have standalone value from the related content asset. We recognize e-newsletter revenue in the period in which the e-newsletter is sent.

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List Rentals. List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members.

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Banners. Banner revenue is recognized in the period in which the banner impressions occur.

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Third Party Revenue Sharing Arrangements. Revenue from third party revenue sharing arrangements is recognized on a net basis in the period in which the services are performed. For certain third party agreements where we are the primary obligor, revenue is recognized on a gross basis in the period in which the services are performed.

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

Long-Lived Assets

Our long-lived assets consist primarily of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets have arisen principally from our acquisitions. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets, other than goodwill, are amortized over their estimated useful lives, which we determined 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 one to nine years, using methods of amortization that are expected to reflect the estimated pattern of economic use. 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 and whenever indicators of impairment are present. We use a discounted cash flow approach to determine the fair value of goodwill.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts receivable and accounts payable. The carrying value of these instruments approximates their estimated fair value.

Allowance for Doubtful Accounts

We offset gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectability. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for the allowance for doubtful accounts are recorded in general and administrative expense. If our historical collection experience does not reflect our future ability to collect outstanding accounts receivable, our future provision for doubtful accounts could be materially affected. To date, we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved. The allowance for doubtful accounts was $1.2 million at September 30, 2011 and $1.0 million at December 31, 2010.

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 expense in the Statement of Operations on a straight-line basis over the vesting period of the award or using the accelerated method if the award is contingent upon performance goals. We use the Black-Scholes option-pricing model to determine the fair-value of stock option awards. We calculated the fair values of the options granted using the following estimated weighted-average assumptions:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Expected volatility			79.83	%			*				79.41	%			78	%
Expected term		6.25 years					*			6.25 years				6.25 years
Risk-free interest rate			1.54	%			*				1.92	%			2.85	%
Expected dividend yield			0.00	%			*				0.00	%			0.00	%
Weighted-average grant date fair value per share		$	4.39				*			$	4.77			$	3.89

As there was no public market for our common stock prior to our initial public offering in May 2007, and there has been limited historical information on the volatility of our common stock since the date of our initial public offering, we determined the volatility for options granted in the three and nine months ended September 30, 2011 and 2010 based on an analysis of the historical volatility of our stock and reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using a weighted average of the historical volatility of our stock and the peer group of companies for a period equal to the expected life of the option. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. We applied estimated annual forfeiture rates of 3.6% and 2% for the nine months ended September 30, 2011 and 2010, respectively based on our historical forfeiture experience in determining the expense recorded in those periods.

Internal-Use Software and Website Development Costs

We capitalize costs of materials, consultants and compensation and related expenses of employees who devote time to the development of internal-use software and website applications and infrastructure involving developing software to operate our websites. However, we expense as incurred website development costs for new features and functionalities since it is not probable that they will result in additional functionality until they are both developed and tested with confirmation that they are more effective than the current set of features and functionalities on our websites. Our judgment is required in determining the point at which various projects enter the states at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in which we develop and test new features and functionalities related to our websites, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of website development costs we capitalize and amortize in future periods would be impacted. We review capitalized internal-use software and website development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We would recognize an impairment loss only if the carrying amount of the asset is not recoverable and exceeds its fair value. We capitalized internal-use software and website development costs of $1.0 million and $0.6 million for the three months ended September 30, 2011 and 2010, respectively, and $2.6 million and $1.6 million for the nine months ended September 30, 2011 and 2010, respectively.

Income Taxes

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

Our deferred tax assets are comprised primarily of net operating loss (“NOL”) carryforwards. As of December 31, 2010, we had state NOL carryforwards of approximately $17.7 million, which may be used to offset future taxable income. The NOL carryforwards expire through 2029.

Net Income (Loss) Per Share

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

Results of Operations

The following table sets forth our results of operations for the periods indicated:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2011								2010								2011								2010
		($ in thousands)
Revenues:
Online		$	21,763				84	%		$	18,878				86	%		$	66,294				87	%		$	58,065				85	%
Events			4,129				16				3,123				14				10,266				13				10,052				15
Total revenues			25,892				100				22,001				100				76,560				100				68,117				100
Cost of revenues:
Online			5,547				21				4,921				23				16,873				22				15,043				22
Events			1,488				6				1,149				5				3,607				5				3,459				5
Total cost of revenues			7,035				27				6,070				28				20,480				27				18,502				27
Gross profit			18,857				73				15,931				72				56,080				73				49,615				73
Operating expenses:
Selling and marketing			10,182				39				8,984				41				28,997				38				27,815				41
Product development			1,874				7				2,087				9				5,690				7				6,623				10
General and administrative			3,105				12				3,567				16				10,362				14				11,671				17
Restructuring			—				—				—				—				384				1				—				—
Depreciation			692				3				592				3				2,001				3				1,759				2
Amortization of intangible assets			955				4				1,126				5				3,030				4				3,401				5
Total operating expenses			16,808				65				16,356				74				50,464				66				51,269				75
Operating income (loss)			2,049				8				(425	)			(2	)			5,616				7				(1,654	)			(2	)
Interest income, net			20				*				79				*				32				*				270				*
Income (loss) before provision for income taxes			2,069				8				(346	)			(2	)			5,648				7				(1,384	)			(2	)
Provision for income taxes			1,106				4				266				1				2,942				4				1,122				2
Net income (loss)		$	963				4	%		$	(612	)			(3	)%		$	2,706				4	%		$	(2,506	)			(4	)%

Comparison of Three Months Ended September 30, 2011 and 2010

Revenues

		Three Months Ended September 30,
										Increase				Percent
		2011				2010				(Decrease)				Change
		($ in thousands)
Revenues:
Online		$	21,763			$	18,878			$	2,885				15	%
Events			4,129				3,123				1,006				32
Total revenues		$	25,892			$	22,001			$	3,891				18	%

Online. The increase in online revenue was primarily attributable to a $2.0 million increase in lead generation offerings, primarily due to an increase in sponsorship and white paper sales volumes. Branding revenues also increased by $0.7 million, due primarily to an increase in banner sales volume.

Events. The increase in events revenue is due to the timing of a major multi-day conference held in the third quarter of 2011 that was held in the second quarter of 2010.

Cost of Revenues and Gross Profit

		Three Months Ended September 30,
										Increase				Percent
		2011				2010				(Decrease)				Change
		($ in thousands)
Cost of revenues:
Online		$	5,547			$	4,921			$	626				13	%
Events			1,488				1,149				339				30
Total cost of revenues		$	7,035			$	6,070			$	965				16	%
Gross profit		$	18,857			$	15,931			$	2,926				18	%
Gross profit percentage			73	%			72	%