TechTarget Inc. (TTGT, Financial) filed Quarterly Report for the period ended 2012-03-31.
Techtarget has a market cap of $291.4 million; its shares were traded at around $6.26 with a P/E ratio of 37.5 and P/S ratio of 2.8.
Events. Events revenue represented approximately 7% and 10% of total revenues for the three months ended March 31, 2012 and 2011, respectively. Most of our media groups operate revenue generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day conferences, single-day seminars and custom events. Multi-day conferences provide independent 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 seminars in that they are exclusively sponsored by a single IT vendor, and the content is driven primarily by the sole sponsor.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for the first quarter of both 2012 and 2011 was 71%. The increase in online gross profit was $1.3 million, attributable to the increase in online revenue offset by increases in compensation costs as compared to the first quarter of 2011. Events gross profit decreased by $0.4 million, primarily as a result of the lower events revenues. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period, as well as the relative contribution of online and events revenues to our total revenues.
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days sales outstanding, or DSO, as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at period end divided by total revenue for the applicable period, multiplied by the number of days in the applicable period. DSO was 114 days for the quarter ended March 31, 2012 and 84 days at December 31, 2011. The increase in DSO is primarily the result of lower cash collections during the quarter as it compared to billings. Collections decreased quarter over quarter by approximately 16.5% versus a billings decrease of 4.7%. Collections are, however, consistent with prior first quarters collections activities.
Cash (used in) provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, the provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash used in operating activities for the three months ended March 31, 2012 was $1.5 million compared to cash provided by operating activities of $0.7 million in the three months ended March 31, 2011. The decrease in cash provided by operating activities was a result of changes in operating assets and liabilities of $(5.3) million in the first three months of 2012 compared to $(2.6) million in the first three months of 2011. Significant components of the changes in assets and liabilities included a $3.5 million increase in accounts receivable during the first three months of 2012 compared to an increase of $1.3 million in the first three months of 2011, caused by lower cash collections in the quarter as compared to billings; an increase in prepaids and other current assets of $1.5 million in 2012 as compared with an increase of $0.6 million in 2011, primarily caused by tax and benefits-related receivables; and a slight decrease in other liabilities, primarily deferred rent, in 2012 as compared with an increase of $0.4 million in 2011. These changes were offset in part by an increase in deferred revenue of $1.7 million in 2012 compared to an increase of $0.6 million in 2011. Additionally, there was a $0.5 million increase in net income (loss) adjusted for non-cash related items.
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Techtarget has a market cap of $291.4 million; its shares were traded at around $6.26 with a P/E ratio of 37.5 and P/S ratio of 2.8.
Highlight of Business Operations:
Macro-economic Conditions and Industry Trends. Because all of our customers are IT vendors, the success of our business is intrinsically linked to the health, and subject to market conditions, of the IT industry. In addition to the ongoing instability and unpredictable growth continuing to affect the domestic and international economies, generally, in the three-month period ended March 31, 2012, we saw a growing weakness in the IT market. Using the six largest Global IT vendors by revenue (HP, IBM, Dell, Microsoft, Cisco, Oracle) as a barometer, their aggregate revenue for their most recently reported public quarter decreased approximately $200 million compared to the same quarter in the prior year, which is flat on a percentage basis. When comparing that same prior quarter to 2010, revenue was up almost $10 billion in that quarter, equal to a 9.8% increase. This is a clear indication that there has been a material deceleration in the growth in the Global IT market. As a result, recently, we have started to see evidence that some IT vendors North American advertising budgets are being cut, which is negatively affecting our growth rate. Additionally, unlike previous periods, this deceleration has affected all segments of our customer base. As a result, until management is able to better determine if the pullback in spending by our customers is a temporary condition or a new level of spending, although we will continue to invest in growth areas, management will carefully control discretionary spending such as travel and entertainment, and the filling of new and replacement positions, in an effort to maintain profit margins and cash flow.Events. Events revenue represented approximately 7% and 10% of total revenues for the three months ended March 31, 2012 and 2011, respectively. Most of our media groups operate revenue generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day conferences, single-day seminars and custom events. Multi-day conferences provide independent 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 seminars in that they are exclusively sponsored by a single IT vendor, and the content is driven primarily by the sole sponsor.
Gross Profit. Our gross profit is equal to the difference between our revenues and our cost of revenues for the period. Gross profit for the first quarter of both 2012 and 2011 was 71%. The increase in online gross profit was $1.3 million, attributable to the increase in online revenue offset by increases in compensation costs as compared to the first quarter of 2011. Events gross profit decreased by $0.4 million, primarily as a result of the lower events revenues. Because the majority of our costs are labor-related, we expect our gross profit to fluctuate from period to period depending on the total revenues for the period, as well as the relative contribution of online and events revenues to our total revenues.
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days sales outstanding, or DSO, as a measurement of the quality and status of our receivables. We define DSO as net accounts receivable at period end divided by total revenue for the applicable period, multiplied by the number of days in the applicable period. DSO was 114 days for the quarter ended March 31, 2012 and 84 days at December 31, 2011. The increase in DSO is primarily the result of lower cash collections during the quarter as it compared to billings. Collections decreased quarter over quarter by approximately 16.5% versus a billings decrease of 4.7%. Collections are, however, consistent with prior first quarters collections activities.
Cash (used in) provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, the provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash used in operating activities for the three months ended March 31, 2012 was $1.5 million compared to cash provided by operating activities of $0.7 million in the three months ended March 31, 2011. The decrease in cash provided by operating activities was a result of changes in operating assets and liabilities of $(5.3) million in the first three months of 2012 compared to $(2.6) million in the first three months of 2011. Significant components of the changes in assets and liabilities included a $3.5 million increase in accounts receivable during the first three months of 2012 compared to an increase of $1.3 million in the first three months of 2011, caused by lower cash collections in the quarter as compared to billings; an increase in prepaids and other current assets of $1.5 million in 2012 as compared with an increase of $0.6 million in 2011, primarily caused by tax and benefits-related receivables; and a slight decrease in other liabilities, primarily deferred rent, in 2012 as compared with an increase of $0.4 million in 2011. These changes were offset in part by an increase in deferred revenue of $1.7 million in 2012 compared to an increase of $0.6 million in 2011. Additionally, there was a $0.5 million increase in net income (loss) adjusted for non-cash related items.
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