EX-99.3 5 pro-forma.htm PRO FORMA FINANCIAL INFORMATION pro-forma.htm
 
Exhibit 99.3
TechTarget, Inc.
Unaudited Pro Forma Combined Financial Statements
 
 
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
On November 6, 2007, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among TechTarget, Inc., a Delaware corporation ("TechTarget"), Catapult Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Registrant (the “Merger Sub”), and KnowledgeStorm, Inc., a Delaware corporation (“KnowledgeStorm”), the Registrant acquired all of the outstanding capital stock of KnowledgeStorm and the Merger Sub merged with and into KnowledgeStorm, with KnowledgeStorm surviving as a wholly-owned subsidiary of TechTarget (the “Merger”).
 
Pursuant to the Merger Agreement, TechTarget paid an aggregate purchase price of approximately $58 million, consisting of approximately $52 million in cash and 359,820 shares of TechTarget's common stock valued at $6.0 million, less the sum of the certain transaction expenses, and existing debt obligations, for all of the outstanding capital stock of KnowledgeStorm. Each outstanding option and warrant to purchase KnowledgeStorm’s stock was either terminated and/or cancelled and converted automatically into the right to receive the applicable consideration provided pursuant to the Merger Agreement.
 
Pursuant to the Merger Agreement, TechTarget deposited the 359,820 shares issued as part of the consideration for KnowledgeStorm’s outstanding capital stock (the “Escrow Shares”) into escrow to secure certain indemnification and other payments under the terms of the Merger Agreement. The Escrow Shares shall be released, absent any claims allowing for reduction of the amount of Escrow Shares held in escrow, on the dates that are six months, one year and eighteen months following November 6, 2007 in amounts equal to (i) in the case of the first release date, 35.834% of the Escrow Shares, (ii) in the case of the second release date, 59.741% of the Escrow Shares and (iii) in the case of the final release date, all of the Escrow Shares held in escrow on such date.
 
The following unaudited pro forma combined statements of operations combine the statement of operations data for TechTarget and KnowledgeStorm for the year ended December 31, 2006 and for the nine months ended September 30, 2007 as if the acquisition had been completed on January 1, 2006.  The following unaudited pro forma combined balance sheet combines balance sheet data for TechTarget and KnowledgeStorm as of September 30, 2007 as if the acquisition had been completed on September 30, 2007. The pro forma financial information is based upon the historical consolidated financial statements of TechTarget and KnowledgeStorm and the assumptions, estimates and adjustments which are described in the notes to the unaudited pro forma combined financial statements. The assumptions, estimates and adjustments are preliminary and have been made solely for purposes of developing such pro forma information.  The unaudited pro forma combined financial statements include adjustments that have been made to reflect the preliminary purchase price allocations. These preliminary allocations represent estimates made for purposes of these pro forma financial statements and are subject to change upon a final determination of fair value.
 
The unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or consolidated results of operations of TechTarget that would have been reported had the acquisitions occurred on the dates indicated, nor do they represent a forecast of the consolidated financial position of TechTarget at any future date or the consolidated results of operations for any future period. Furthermore, no effect has been given in the unaudited pro forma combined statements of operations for synergistic benefits or cost savings that may be realized through the combination of TechTarget and KnowledgeStorm or costs that may be incurred in integrating the two companies. The unaudited pro forma combined financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Registration Statement on Form S-1 (File No. 333-140503), which is on file with the SEC, and TechTarget’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, each of which is incorporated herein by reference, and the historical financial statements and related notes of KnowledgeStorm included in this Form 8-K/A.
 
 
- 1 -
Exhibit 99.3
 
TechTarget, Inc.
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 2007
(In thousands)
 
 
   
Historical
    
Pro forma
          
Pro forma
  
   
TechTarget
    
KnowledgeStorm
    
Adjustments
          
Combined
  
ASSETS
                              
Current Assets:
                              
Cash and cash equivalents
   $  20,769     $  217     $  2,059     A, C     $  23,045  
Short-term investments
     87,901       -       (51,730 )   A       36,171  
Accounts receivable, net of allowance for doubtful accounts
     12,419       2,243       (1,008 )   A, C       13,654  
Prepaid expenses and other current assets
     3,459       159       (27 )   A, C       3,591  
Deferred tax assets
     735       -       2,454     A, G       3,189  
Total current assets
     125,283       2,619       (48,252 )           79,650  
                                       
Property and equipment, net
     3,769       806       (24 )   A, C       4,551  
Goodwill
     43,225       -       45,440     A, B       88,665  
Intangible assets, net of accumulated amortization
     12,087       -       11,280     A, B       23,367  
Other assets
     105       39       -             144  
Deferred tax assets
     1,834       -       (523 )   A, G       1,311  
                                       
Total assets
   $  186,303     $  3,464     $  7,921           $  197,688  
                                       
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
                                      
Current Liabilities:
                                      
Current portion of bank term loan payable
   $  3,000     $  2,094     $  (2,076 )   A, C     $  3,018  
Accounts payable
     3,121       331       (98 )   A, C       3,354  
Accrued expenses and other current liabilities
     3,338       710       3,324     A, C       7,372  
Deferred revenue
     5,590       2,338       (1,495 )   A, C       6,433  
Total current liabilities
     15,049       5,473       (345 )            20,177  
                                       
Long-term liabilities:
                                      
Other liabilities
     458       258       (1 )   A, C       715  
Bank term loan payable, net of current portion
     3,750       125       (125 )   A, C       3,750  
Total liabilities
     19,257       5,856       (471 )           24,642  
                                       
Preferred stock
     -       25,985       (25,985 )   D       -  
                                       
Stockholders' equity (deficit):
                                      
Common stock
     41       1       (1 )   D       41  
Additional paid-in capital
     199,689       6,336       (336 )   A, D       205,689  
Warrants
     55       -       -             55  
Accumulated other comprehensive loss
     (70 )     -       -             (70 )
Accumulated deficit
     (32,669 )     (34,714 )     34,714     D       (32,669 )
Total stockholders' equity (deficit)
     167,046       (28,377 )     34,377             173,046  
                                       
Total liabilities and stockholders' equity (deficit)
   $  186,303     $  3,464     $  7,921           $  197,688  
 
 
See accompanying notes to the unaudited pro forma financial information.
 
- 2 -
Exhibit 99.3
 
TechTarget, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2006
(In thousands, except per share amounts)

   
Historical
    
Pro forma
          
Pro forma
  
   
TechTarget
    
KnowledgeStorm
    
Adjustments
          
Combined
  
                               
Revenues:
                              
Online
   $ 51,176     $ 17,780     $ (1,751 )   E     $ 67,205  
Events
     19,708       -       -             19,708  
Print
     8,128       -       -             8,128  
Total revenues
     79,012       17,780       (1,751 )           95,041  
                                       
Cost of revenues:
                                      
Online (1)
     12,988       2,733       -             15,721  
Events (1)
     6,493       -       -             6,493  
Print (1)
     5,339       -       -             5,339  
Total cost of revenues
     24,820       2,733       -             27,553  
                                       
Gross profit
     54,192       15,047       (1,751 )           67,488  
                                       
Operating expenses:
                                      
Selling and marketing (1)
     20,305       7,679       261     F       28,245  
Product development (1)
     6,295       2,970       -             9,265  
General and administrative (1)
     8,756       4,508       -             13,264  
Depreciation
     1,144       389       -             1,533  
Amortization of intangible assets
     5,029       -       2,602     B       7,631  
Total operating expenses
     41,529       15,546       2,863             59,938  
                                       
Operating income (loss)
     12,663       (499 )     (4,614 )           7,550  
                                       
Interest income (expense):
                                      
Interest income
     1,613       22       (1,635 )    H       -  
Interest expense
     (1,292 )     (104 )     (720 )    H       (2,116 )
Total interest income (expense)
     321       (82 )     (2,355 )            (2,116 ) 
                                       
Income before provision for (benefit from) income taxes
     12,984       (581 )     (6,969 )           5,434  
                                       
Provision for (benefit from) income taxes
     5,811       -       (3,379 )   G       2,432  
                                       
Net income (loss)
   $ 7,173     $ (581 )   $ (3,590 )         $ 3,002  
                                       
Net income (loss) per common share:
                                      
Basic
   $ (0.46 )                         $  (0.95 ) 
Diluted
   $ (0.46 )                         $  (0.95 ) 
                                       
Weighted average common shares outstanding:
                                      
Basic
     7,824               360             8,184  
Diluted
     7,824               360             8,184  
                                       
                                       
(1)  Amounts include stock-based compensation expense as follows:
                                      
Cost of online revenue
     87       -       -             87  
Cost of events revenue
     31        -       -             31  
Cost of print revenue
     12        -       -             12  
Selling and marketing
     606        -       261             867  
Product development
     90        -       -             90  
General and administrative
     424       4       -             428  
 
See accompanying notes to the unaudited pro forma financial information.
 
- 3 -
Exhibit 99.3
 
TechTarget, Inc.
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 2007
(In thousands, except per share amounts)
 
   
Historical
    
Pro forma
          
Pro forma
  
   
TechTarget
    
KnowledgeStorm
    
Adjustments
          
Combined
  
                               
Revenues:
                              
Online
   $ 44,726     $ 13,304     $ -           $ 58,030  
Events
     16,201       -       -             16,201  
Print
     5,323       -       -             5,323  
Total revenues
     66,250       13,304       -             79,554  
                                       
Cost of revenues:
                                      
Online (1)
     11,194       2,246       -             13,440  
Events (1)
     6,065       -       -             6,065  
Print (1)
     2,990       -       -             2,990  
Total cost of revenues
     20,249       2,246       -             22,495  
                                       
Gross profit
     46,001       11,058       -             57,059  
                                       
Operating expenses:
                                      
Selling and marketing (1)
     19,811       6,106       195     F       26,112  
Product development (1)
     5,021       2,319       -             7,340  
General and administrative (1)
     8,917       3,167       -             12,084  
Depreciation
     1,095       271       -             1,366  
Amortization of intangible assets
     2,971       0       1,224     B       4,195  
Total operating expenses
     37,815       11,863       1,419             51,097  
                                       
Operating income (loss)
     8,186       (805 )     (1,419 )           5,962  
                                       
Interest income (expense):
                                      
Interest income
     2,058       -       (2,058 )    H       -  
Interest expense
     (851 )     (131 )     (540 )    H       (1,522 )
Total interest income (expense)
     1,207       (131 )     (2,598 )            (1,522 ) 
                                       
Income (loss) before provision for (benefit from) income taxes
     9,393       (936 )     (4,017 )           4,440  
                                       
Provision for (benefit from) income taxes
     4,820       -       (2,542 )   G       2,278  
                                       
Net income (loss)
   $ 4,573     $ (936 )   $ (1,476 )         $ 2,161  
                                       
Net income (loss) per common share:
                                      
Basic
   $ 0.03                           $ (0.07 ) 
Diluted
   $ 0.02                           $ (0.07 ) 
                                       
Weighted average common shares outstanding:
                                      
Basic
     24,282               375             24,657  
Diluted
     27,185               (2,528 )           24,657  
                                       
                                       
(1)  Amounts include stock-based compensation expense as follows:
                                      
Cost of online revenue
     156       -       -             156  
Cost of events revenue
     43       -       -             43  
Cost of print revenue
     18       -       -             18  
Selling and marketing
     2,054       -       195             2,249  
Product development
     230       -       -             230  
General and administrative
     1,421       7       -             1,428  
 
See accompanying notes to the unaudited pro forma financial information.
 
- 4 -
Exhibit 99.3
 
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
 
1.  Reclassifications
 
Certain balances for the historical statements of operations of KnowledgeStorm, Inc. for the year ended December 31, 2006 and the nine months ended September 30, 2007 have been reclassfied to conform to TechTarget's financial statement presentation.
2.  Acquisition of KnowledgeStorm, Inc. 

(A)
The estimated purchase price of KnowledgeStorm, Inc. for purposes of preparing these unaudited pro forma combined financial statements is $57.9 million, including $51.7 million in cash, $6.0 million in common stock and $224,000 in transaction-related costs. The allocation of the purchase price and the purchase price accounting is based upon preliminary estimates of the assets and liabilities acquired on November 6, 2007 in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. It is anticipated that the final purchase price allocation will not differ materially from the preliminary allocations.

The purchase price paid for KnowledgeStorm is as follows:

Cash paid
   $  51,730  
Common stock issued
     6,000  
Transaction costs
     224  
         
Total purchase price
   $  57,954  
 
The allocation of the purchase price is estimated as follows:

 Cash
   $  2,813  
 Accounts receivable
     1,235  
 Prepaid expenses and other current assets
     132  
 Property and equipment
     782  
 Other assets
     39  
 Accounts payable
     (233 )
 Accrued expenses and other current liabilities
     (4,366 )
 Deferred revenue
     (843 )
 Other liabilities
     (257 )
 Deferred tax asset - current
     2,455  
 Deferred tax asset - non-current
     (523 )
 Identified intangible assets
     11,280  
 Goodwill
     45,440  
         
Total purchase price   $  57,954  
 
 
- 5 -
Exhibit 99.3
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
 
2.  Acquisition of KnowledgeStorm, Inc. - Continued
 
(B)
To record pro forma amortization of intangible assets resulting from TechTarget’s acquisition of KnowledgeStorm from the beginning of the period presented over their estimated useful lives as follows:

   
Intangible Asset
    
Estimated Useful Life (years)
    
Amortization Expense Year Ended December 31, 2006
    
Amortization Expense Nine Months Ended September 30, 2007
  
Customer contracts and related customer relationships
   $ 6,100       1 - 9     $ 1,513     $ 430  
Trade name
     1,100       7       157       118  
Member database and other intangible assets
     4,080       1 - 5       932       677  
Total    $ 11,280             $ 2,602     $ 1,224  
 
 
(C)
Adjustment to certain assets and liabilities reflect changes in the balances from September 30, 2007 to the date of acquisition, November 6, 2007.

Cash
   $  2,596  
Accounts receivable
   $  (1,008 )
Prepaid expenses and other current assets
   $  (27 )
Property and equipment
   $  (24 )
Accounts payable
   $  (98 )
Accrued expenses and other current liabilities
   $  2,889  
Deferred revenue
   $  (745 )
Other liabilities
   $  (1 )
Bank term loan
   $  (2,201 )

The following table reflects the adjustments to record the difference between the preliminary fair value and the historical amount of KnowledgeStorm’s deferred revenue (see (E) below):

   
KnowledgeStorm
    
Net
    
Preliminary
  
   
Historical
    
Adjustment
    
Fair Value
  
                   
Deferred revenue
   $  2,338     $  (1,495 )   $  843  
 
- 6 -
Exhibit 99.3
TechTarget, Inc.
Notes to Unaudited Pro Forma Financial Information
(in thousands)
 
2.  Acquisition of KnowledgeStorm, Inc. - Continued

 
(D)
Adjustment reflects the elimination of the historical stockholders’ deficit of KnowledgeStorm.

 
(E)
Adjustment of $1,751 for the year ended December 31, 2006 represents the net reduction in online revenue associated with the difference between the preliminary fair value and the historical amount of deferred revenue at the beginning of the period. The preliminary fair values represent amounts equivalent to the estimated cost plus an appropriate profit margin to perform services related to KnowledgeStorm’s advertising contracts based on the deferred revenue balances of KnowledgeStorm.
 
 
(F)
Adjustment reflects stock-based employee compensation expense for 45,000 restricted stock awards granted to two KnowledgeStorm employees as part of the acquisition.
 
 
(G)
Adjustments reflect the effect of the acquisition on the provision for income taxes as if TechTarget’s effective tax rate of 44.8% for the year ended December 31, 2006 and 51.3% for the nine months ended September 30, 2007 were applied to the pro forma combined pre-tax income.
 
(H)
Adjustment to record interest expense on additional bank term loan borrowings that would have been needed to complete the acquisition on January 1, 2006 using an assumed average interest rate of 6.50% for the twelve months ended December 31, 2006 and the nine months ended September 30, 2007.
 
Adjustment to eliminate interest income from TechTarget's statement of operations for cash used in the acquisition and not available for investment during the period. 
 
 
- 7 -