TechTarget Inc (TTGT) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to today's TechTartget Second Quarter Earnings Conference call. Today's call is being recorded. With us today from the company is Greg Strakosch, Co-Founder and CEO, Don Hawk, Co-Founder and President and Eric Sockol, CFO. I would now like to turn the call over to Eric Sockol. Please go ahead, sir.

Thank you. Good afternoon. I'm Eric Sockol, CFO of TechTarget and I'm happy to welcome you to TechTarget's second quarter 2007 conference call and webcast. During the course of this conference call, we will make certain statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including particularly our guidance as to future financial results.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. These risks include market acceptance for our products and services, relationships with customers, strategic partners and our employees, difficulties in integrating acquired businesses and changes in economic or regulatory conditions or other trends that affect the Internet, Internet advertising and information technology industries. For a description of other risks, we encourage you to read the section entitled Risk Factors in our registration statement, Form S-1, filed with the Securities and Exchange Commission.

In addition, our forward-looking statements speak only as of the date of this call and we undertake no obligation to update these forward-looking statements. TechTarget's policy is to provide expectations only once per quarter and not to update this information until the following quarter.

At this time, I'd like to turn the call over to Greg Strakosch, our Co-Founder and Chief Executive Officer.

Thank you, Eric. Welcome to TechTarget's first earnings call as a public company. It was a busy and productive quarter.

In May, we completed our public offering and strengthened our balance sheet by adding more than $83 million. Even though we were quite busy with the IPO, we were able to produce record overall revenues, record online revenues and record adjusted EBITDA. I'd like to thank every TechTarget employee for working hard, staying focused and delivering the results. Your passion is appreciated.

Let me preview the structure of this call. Initially, I'm going to turn it back over to our CFO, Eric Sockol, who will discuss our financial results. I will then return and give you an overview and update on the business and then Don Hawk, my Co-Founder and our President will provide some color on our product and audience initiatives. Finally, before opening up the call for questions, I will share our guidance for Q3. Eric?

Thanks, Greg. We're pleased to report that we achieve a number of record financial metrics during the second quarter of 2007. Before I discuss the results, I would like to remind everyone that we will be presenting both GAAP as well as non-GAAP financial measures. The non-GAAP financial measures which will be discussed are adjusted EBITDA and adjusted EBITDA margin.

We are reporting record Q2 revenues of $24.6 million, which is an increase of 19% over Q2 2006. Online revenues continue to be our largest and fastest growing revenue stream. We are reporting record Q2 online revenues of $16.3 million, which is an increase of 27% over Q2 2006 and they represent 66% of total revenues for the quarter. Later in the call, Greg and Don will provide some more detail about our media groups as well as our online offerings.

We are reporting events revenue of $6.35 million, which is an increase of 11% over the prior year quarter and represents 26% of total revenues. Our event business continues to complement our online offerings and contributes to our profitability. Finally for Q2, we are reporting print revenues of $1.9 million, which is a decrease of 11% over the prior year quarter and represents only 8% of our total revenues. Print continues to be a smaller percentage of our overall revenues and we expect this trend to continue. On a standalone basis, print continues to be profitable and we are focused on managing print costs so that they are properly aligned with the declining revenue stream.

Our customer concentration and renewal rates remain favorable during the quarter. Our top 10 customers represented 26% of total revenues with no one advertiser greater than 5% of total revenue. Our quarterly customer renewal rate for our top 100 customers remains strong at 94%.

Moving on to gross profit, total profit margin remained consistent at 70% for Q2 2007. Online gross profit continued to demonstrate high operating leverage, achieving 76% for the quarter.

Regarding adjusted EBITDA for Q2, we are reporting a record of $7.6 million. This is an increase of 31% from Q2 2006. For Q2 2007, we are reporting adjusted EBITDA margin of 30.7%, which compares to 27.8% for Q2 2006. Similar to other online companies, a large percentage of our operating costs are fixed and therefore there's a high degree of operating leverage in the business.

For the quarter, excluding stock-based compensation, both sales and marketing and product development expenses decreased as a percentage of total revenues. G&A costs remained the same as a percentage of total revenues due to the increases associated with being a public company.

Regarding expenses not included in adjusted EBITDA, stock-based compensation was $1.2 million compared to $36,000 in Q2 2006, amortization expense, which primarily relates to prior acquisitions, decreased to $1 million compared to $1.4 million in Q2 2006 and depreciation expense was $364,000 compared to $238,000 in Q2 2006.

Moving on to income taxes, our GAAP effective tax rate was 49% for the quarter compared to 42% for Q2 2006. Since the adoption of FAS 123(R), GAAP effective tax rates have increased and are significantly affected by the amount of stock-based compensation reported in a particular quarter. Excluding the impact of 123(R), our combined federal and state tax rate is approximately 41%.

For Q2 2007, we're reporting GAAP net income of $2.7 million, which is an increase of 14% over Q2 2006. For Q2 2007, GAAP earnings per share, per basic share is $0.06 compared to a loss per share of $0.03 for 2006. Whereas we went public during the quarter, our capital structure for part of the quarter included both preferred and common stock, or as is referred to, a two-class capital structure. If we were to assume that there was only one class of stock during the quarter, then the EPS would have been $0.07 per basic share for both Q2 2007 and Q2 2006.

In closing, I will discuss our balance sheet and liquidity as of the end of the quarter. In May 2007, as Greg stated, we completed our IPO, which significantly strengthened our balance sheet, adding net proceeds of $83.2 million. As of June 30, 2007, our cash, cash equivalents and short-term investments were $102.8 million, our total bank debt was $7.5 million and our days sales outstanding was 46 days. And our current ratio, a standard metric of liquidity was 8 times.

This wraps up my review of the financial results and at this time I'll turn it back to Greg.

Thank you, Eric. There are three macro trends in the media space that are fueling our growth. Those are one, the migration from broad media to targeted media. Two, marketers' fierce focus on demonstrating and increasing ROI. And three, the web is the main place where IT professionals go to research which products to buy.

There is still a gap between online media consumption by the audience and online advertising spending, but that gap continues to close. We believe that TechTarget is the best positioned media company in the $1 trillion plus IT market against each of these three trends.

These three trends are fueling our online growth, which is both our largest line of business as well as our fastest growing. And as Eric said, online growth for the quarter was up 27% over last year. Organic online growth was strong across the board, as 6 of our 9 media groups posted organic online growth rates in excess of 30%.

This strong revenue growth, plus the shift in the mix to more online revenue, allows us to take advantage of the inherent operating leverage in our business model. The 19% increase in overall revenue translated into a 31% increase in adjusted EBITDA. We believe over time that we'll be able to continue to increase our margins.

I'd like to review some of the things we did in the quarter that we believe will contribute to organic growth going forward. These fall into a few different buckets, new products, new site launches, the channel market, vertical markets, international and adding new sales reps. I'll touch on each of these briefly.

On the product front, we launched a new online product, virtual trade shows. Also several new packages that we've created around contextual advertising and white paper and webcast distribution are being well received in the market. Don Hawk will discuss these in further detail later in the call.

We launched three new product segments in our 2020Software.com vertical market site. The three product segments are project management, backup and integrated security. We are testing to see if IT topics will work in this site. We continue to be in roll out and test mode in regards to 2020Software.com in vertical markets. We remain bullish long term that it's a good opportunity for us as there are approximately 20,000 software companies in the U.S. that develop software for specific vertical markets, such as construction company software or medical practice management software.

Another new market area where we've been investing is the channel reseller markets. There are two pieces to this market. The first piece is the dollars that OEMs like EMC and HP spend to recruit, retain and engage resellers. In that area, we launched five sites last year and revenue, traffic and member registration are all growing nicely.

The other channel opportunity is with co-op marketing funds that resellers get from the OEMs. We have a dedicated sales team against this opportunity and because with the resellers tend to be extremely specialized, this matches up very well against our targeted approach. This is another place where we are seeing very healthy growth. We remain bullish on the channel reseller opportunity as there are approximately 50,000 resellers in the U.S.

Another place where we see opportunity for substantial organic growth is international. Approximately 50% of the IT products are sold outside the U.S., yet it is less than 5% of our revenues. We have different strategies to tackle the international opportunity. One way is through content licensing partnerships with leading IT publishers in specific markets where we provide the content to our partners. They maintain the site, sell the ads and share the revenue with us.

Our international partners have recently launched four new sites, two in Australia, one in Germany and one in Spain. We also recently signed content licensing deals with two new partners, one who covers Indonesia, Thailand, the Philippines and Singapore and the other one who covers South Africa.

In other cases, we will operate directly overseas. For example, in Q2, we ran two successful events in Europe, a storage event in the UK and a Java event in Spain. Direct international operations is a place where we will continue to invest, especially online and it provides another long-term growth opportunity.

Also on the organic front, we added 14 new sales reps in the quarter, bringing our total to 70 quota carrying sales reps. These new reps are off to a good start and we expect them to make a contribution in 2008.

In regards to acquisitions, we were fortunate to acquire TechnologyGuide.com during the quarter. TechnologyGuide.com runs four content sites. Their two most well known sites are NotebookReview.com, which as the name suggests is a leading review site for PC notebooks and Brighthand.com, which is a leading review site for smart phones. This network of sites generate more than 10 million monthly page views. We believe that both of these industries will enjoy above average growth as the prices of notebooks and smart phones continue to come down, the migration away from desktop PCs and voice-only cell phones will continue.

TechnologyGuide.com is an ideal addition to our portfolio because IT professionals purchase a large volume of laptops, smart phones and mobile computing devices. So TechTarget now offers additional complementary in-depth content for our audience.

TechnologyGuide had very little advertising revenue before we acquired it, as it was not a focused area for them. We are confident we will be able to grow online advertising revenue on these sites, as many of the leading vendors in these markets already advertise on other TechTarget sites.

To remind people of our acquisition strategy, we've been very opportunistic when the appropriate online properties have come available. Particularly, we've looked for one of two types of properties. The first are smaller sites with high-quality content and established traffic and although they may not be generating a substantial amount of revenue, we can usually buy these sites for a relatively small amount of money and we plug them into our sales and marketing infrastructure in order to grow revenue.

The second kind of acquisition is of companies that already have an online revenue stream. These are obviously more expensive. The strategy for these sites is to take out redundant costs and grow net revenues by adding new products, access to our audience and sales resources.

And last, but certainly not least, we were very proud to announce yesterday that our top-notch editorial team won 28 editorial awards from independent organizations. Our high-quality independent targeted content draws a highly engaged, targeted audience of active buyers, which advertisers are willing to pay premium prices to reach because their marketing investments with us deliver high ROI.

Now I'd like to turn the call over to my Co-Founder, Don Hawk.

Thank you, Greg, and welcome to everybody. I'm going to provide some commentary on the major drivers and new developments in the online revenues.

Our record online revenues and 27% year-over-year growth were the result of strong sales demand across multiple market segments that we serve. Greg's comments that six of nine of our media groups had an organic growth over 30% is indicative of this broad based growth across the portfolio.

I'd point to particularly strong year-over-year percentage growth in our storage, security and CIO media groups, all of which grew more 30% online in the quarter. These are some of our largest media groups and they're markets where our position is very strong. So our ability to continue to grow in these markets at such a rapid pace in Q2 continues to validate our expectation that we continue to have a lot of headroom for growth, even in our larger media groups. It's also a great validation of the emphasis that we put on targeting our content and our advertising opportunities.

These three media groups are the markets in which we've done the most to execute on highly targeted editorial sponsorship opportunities and to take advantage of subtopics within these markets that have high user and advertiser interest.

From a product offering standpoint, our online growth continues to be highly diversified. Of our eight major categories of online offerings, no one offering represented more than 25% of our online revenues in the quarter.

I'll bring your attention today to three major drivers of our online growth that we were focused on in Q2, all of which we believe to be sustainable beyond this quarter. The first is content adjacency, the ability for our customers to position their white papers, their webcasts and other content assets in direct proximity to highly targeted editorial offerings for our users. In Q2, we saw rapid growth in our contextual ROI, (inaudible - background noise) sponsorship offerings put associate vendor content and messaging alongside of our editorial content on very narrowly focused subtopics within our sites coverage areas. The highly targeted nature of our sites and our editorial coverage gives us a big advantage versus our broader competitors in both identifying these niche content areas and creating a critical mass of content against them, allowing us to attract a highly specialized audience for the customers of these offerings.

A second major driver of our Q2 online results has been our focus on building programs around a collection of an advertiser's content assets as opposed to a single white paper or webcast. An important initiative heading into this year was strengthening our capabilities to effectively market multiple content assets from a single advertiser, which we found to have a dramatic effect on the overall success of a lead generation program.

In Q2, we formalized these efforts into a package called ReachROI, which provides vendors who promote multiple content assets with guaranteed performance levels through our client consulting team and the ability to remessage sales leads with new content relevant to their interests.

We also launched a new webcast offering called MediaCAST, which combines webcast, Podcasts and white paper offerings into an integrated program to provide the broadest possible range of vehicles through which users can advertise advertiser content. We're pleased with the initial reactions to these offerings, both from a performance and from a sales standpoint. And the traction that we're seeing on these multiple asset programs is clearly helpful to our ability to scale the spending on individual accounts. Our capabilities in providing highly-targeted promotion around these types of programs and in managing the leads that they generate gives us a head start in this area that we feel that we can continue to build upon.

Another contributor to Q2 online revenue growth was continued attention to product innovation. Our increasing use of Podcasts and our new videocast offering helped drive significant growth in our webcast product line on a year-over-year basis, while Podcasts and videos themselves are not new, we are innovating in our use of these media types to support lead generation for our advertisers.

Another area of product innovation that we believe could develop into a material revenue contributor for us is the introduction of virtual trade shows that Greg alluded to. We launched our first virtual trade show in June on the topic of server virtualization, with an exclusive sponsorship from CA. Attendees could choose from among three different live expert-led sessions on various aspects of server virtualization and could attend a virtual trade show booth manned by representatives from CA to gather more information about relevant CA offerings. Ultimately, this product offering will support both exclusive arrangements like CA's involvement or multiple vendors aligned against a single topic, as would be the case with the traditional trade show. It's already attracting a lot of interest from vendors that are looking to augment their face-to-face event strategy and it's going to represent a good complement to that aspect of our business.

Of course, the consistent underpinning of our online offerings and our product suite as a whole is our user base and it's our ability to segment our users with greater and greater levels of specificity. In Q2, we continued to experience strong member growth across our key markets. With the exception of our vertical software media group, which utilizes paid search engine marketing, the vast majority of our member acquisition in our key segments continues to come through non-paid organic sources.

The highly targeted nature of our sites lends itself to organic member acquisition, particularly through organic search. And starting late last year, we placed a dedicated emphasis on tuning our content to better facilitate search engine optimization. Those efforts have clearly begun to pay off as search engine generated traffic to sites that we've operated for more than a year actually increased by over 30% on a year-over-year basis in Q2.

With that, I'll turn it back over to Greg for a discussion of forward guidance and I look forward to answering your questions.

Thanks, Don. Before I open up the call for questions, I'd like to share our guidance for Q3. We are expecting revenues between $22.6 million and $23.6 million. We are expecting adjusted EBITDA of between $5 million and $6 million. We do not anticipate updating guidance during the quarter.

Now Don, Eric and myself will be glad to take your questions.

Thank you. (OPERATOR INSTRUCTIONS) And we'll take our first question from David Joseph with Morgan Stanley.

Hi guys. Just -- you guys certainly provided a lot of information on the call and certainly that's appreciated. And I guess one thing might be just to help us condense it a little bit. I guess first and foremost, I'll look at the online revenue, which clearly was better than expected and when you -- Don, I think, provided some color on the media groups as well as in terms of the monetization. In terms of the media groups, it seems like you did see the strength, obviously, in storage and security and the CIO business, but it seems like you also might have had -- those are the largest segments, but what was really necessarily the fastest grower? I was wondering if you could provide a little bit more color on that?

And related to that, a competitor of yours actually recently talked about seeing some pressure in the technology advertising spending, more specifically related to PC. I'm wondering if you could talk to that a little bit? It was more related to the consumer elements of the business, but I was wondering if you might be seeing it in the B2B segment?

And then also, and lastly, I'm wondering if on the -- when we look at the fourth quarter, in the seasonality of your business, clearly Q2 and Q4 are your seasonally strongest quarters. Is there any reason to think, you guys have been launching a lot of products both internationally and domestically here, is there any reason to think that the seasonality in the fourth quarter this year could be stronger than what we've seen in the past? Thank you.

Okay. So, there's three different questions. Let me just think about it. In terms of the fastest growing, it's some of the newer groups that you would expect, but they're growing off smaller basis. So there's -- that's how I'd answer the fastest growing.

In terms of the question about weakness from larger advertisers in the PC space, I think you're referring to CNET. I think there's a general misperception that we compete head-to-head with CNET and in reality, we really don't see them in the field very much because they're very consumer focused and we're focused on the enterprise IT market. So we have very minimal exposure to the PC market. So we haven't seen yet any of the weakness that they described in their call.

And then in terms of seasonality, it's been pretty consistent over all the years we've run the business, like you said, the second quarter and the fourth quarter are the strongest and we usually see an increase Q4 sequentially from Q3.

Just to follow-up on the media businesses, I guess what I'm trying to get at is it seems like certain businesses or elements of your business like vertical software, for example, is a key focus of yours. I'm assuming that that's one of the faster growers for yours. Can that be one of the -- what are the key drivers really going forward? Do you expect it to be the usual suspects like software and CIO and security going forward? Or are there emerging media segments that can be incremental drivers going forward? And then also, just on the monetization component, just really quickly, is the growth really also, do you think, going to be coming more from being able to sell programs per advertiser versus just pricing?

Dave, this is Don, I'll take a shot at both of those if I could. So on your follow-up on the media groups question, certainly the areas that are seeing the fastest percentage growth are those areas that we've identified as being key growth initiatives for us going forward, that being channel and the vertical software segment.

I think the point we were trying to make in our prepared remarks that we were also seeing significant percentage year-over-year growth on our larger media groups where we already have a well-established position. So certainly the performance we saw in Q2 was consistent with our expectations in that on that percentage basis we're going to see the highest percentage growth in some of those groups that are newer for us where we're starting from a smaller base. And again we're very pleased with our progress in those areas thus far, but we're also very pleased with the kind of growth we were able to show in some of these larger markets where we've been around for a much longer amount of time.

Again, I think it just goes to the amount of headroom that we think the overall business has. We can continue to show that kind of growth both on the new areas and on our more well-established areas. Obviously, we're optimistic about our future prospects.

I think your second question was in regard to monetization, is it coming more from pricing or from -- I believe you were referring to more programs per advertiser?

Yes.

And really, it's a combination of both. I mean, certainly, the ability that we have to deliver very specialized, targeted leads gives us a good amount of pricing power and we exercise that in areas where we feel that we're able to. But we also were able to show increased spending from individual accounts and that's really been the story of our growth throughout the history of the company. We start with accounts -- accounts come in, they're new with us, they do test programs with us and then as they grow, they do more programs with us. So we're really seeing monetization from both angles there.

Great. Thanks a lot. I really appreciate it.

And we'll go next to Douglas Anmuth with Lehman Brothers.

Thank you. A couple of different questions, I'll just give them to you one by one and let you answer and then come back for more. First question is, can you talk about the contribution during the quarter from 2020, Ajaxian and TechGuide? Thanks.

Sure. I'll -- in no particular order. First off I'll talk about TechGuide. I just want to remind everybody that we acquired TechGuide prior to going public and the anticipated revenue related to the acquisition was included in our model for Q2. For Q2, revenue related to TechGuide was less than 2%. Okay?

Regarding Ajaxian, which was a website that we acquired in February, primarily the revenue stream from that would be event driven and there was no event that occurred during the quarter.

And then as far as 2020, which we acquired in May 2006, we are not giving detail at a product and website level. So that's not information that we're providing at that level.

Okay. And then if I could follow-up, could you just talk a little bit more broadly just in terms of the -- it seems like we're seeing slow corporate adoption of Vista here and seemingly a delay of Service Pack 1, can you just talk about the impact that that may or may not have on your business? And then, just overall, your view on corporate IT ad spending? Thanks.

Yes, so in terms of Vista, when Microsoft does a new release, the first year is always consumer. Corporations in general don't do major installations the first year of a new Microsoft release. So there really wasn't an expectation on our part to see any sort of lift from Vista in 2007. There potentially could be increase in 2008.

In terms of just overall enterprise IT spending, we're not really seeing anything different from our customers in terms of their advertising budgets related to revenues. So I'd say, we haven't seen any change in the last couple of years on that.

Okay. And then, just the final question. Eric, can you give a little bit of -- little bit more detail in terms of the breakout on your reconciliation for guidance in terms of G&A and also stock-based comp? And then can you clarify the share count issue? You mentioned that sort of quickly, just in terms of how we should think about the share count going forward and where you actually ended the second quarter? Thank you.

Sure. Absolutely, Doug, thanks. Okay. I'll touch upon the items that, if you will, are excluded from adjusted EBITDA. Regarding amortization, we expect to, for Q3, and these all relate to Q3, to be about $1.2 million related to amortization. Regarding depreciation, we expect that amount to be about $400,000. Regarding stock-based compensation, we expect that amount to be about $1.6 million. And regarding interest income, net, we expect that amount to be about $880,000.

And then to give you some guidance on share count for Q3, on a basic weighted average share basis, we expect that to be about 40.320 million and on a fully diluted basis, we expect that to be 43.174 million. I just want to note that on a fully diluted, because of the treasury method, there is a variable there based on stock price.

Was there another question you had?

Can you just clarify what's in your release in terms of why the numbers don't exactly tie together on the EPS and your net income?

Sure, sure. Okay. Without getting too complicated, because during the quarter, we were private at one point and because we had a capital structure that had both preferred and common, there's a fairly complicated calculation, which distorts the number, if you will, for GAAP purposes. So to give you the number, if it was non-GAAP -- I mean if it was, I'm sorry, if it was on a proforma basis, would have been approximately 37.4 million for basic and 39.9 for fully diluted. Okay?

Okay. That's very helpful. Thank you.

Thanks.

And we'll take our next question from Jordan Rohan with RBC Capital Markets.

Hi, nice quarter.

Thank you Jordan.

Thank you.

I think I heard you say that you increased your sales force by 25% from, I would assume, 56 to 70 sales people currently. That was done in 2Q alone and I would think you would also get more inventories to sell, advertising inventories, from TechnologyGuide. It seems like you should be able to grow the online business at 30% plus, even seeing an acceleration from the 27% growth you saw in the online in 2Q. If that -- if I'm not understanding the trend based on that big ramp in sales people, can you please explain why the sales productivity would go down or if it's just a certain hint of conservatism in your guidance? Thank you.

Well, the sales people, yes, we did add 14 new people. The way we've built our sales team, our strategy, instead of going out and hiring expensive media sales people already in the space, we hire people right off the campus, graduating seniors, that's how we basically built our whole sales team.

So all those people that start in June all just graduated from college in May, so they don't ramp up as quickly. So we're not going to -- we don't expect to see any sort of material revenue production from them in Q3 and really not that much in Q4. It's really a 2008, 2009 story with the new sales team.

That also partially explains the guidance for adjusted EBITDA margins for the next quarter, specifically over $7 million of EBITDA going down to the $5 million to $6 million range?

Sure. In the guidance, we've got -- if you're referring to -- for Q3, if you were to take the midpoint, the EBITDA margin was about 24%. Is that what you're referring to Jordan?

Yes, I am.

Okay. And 24% is still a healthy operating margin. There are three things that are occurring in Q3 that are kind of unique from an expense standpoint. First of all, as Greg just mentioned, we've invested in hiring 14 additional sales people in June. So they're full costs are included in Q3. Also we've been adding additional heads in addition to those 14 and we had to pick up some executives -- some additional office space, which began on July 1.

In Q3, we're spending a significant portion of our annual marketing budget because we're holding a free customer conference in September on ROI marketing and that's with over 400 customers. And then lastly, Q3 is our first public quarter, so it's the first quarter where we have a full three months of public related costs.

So those factors are kind of specific, if you will, to Q3. If you take a look -- if you take again the middle of the guidance and you look at it on a nine-month basis, the operating margins are still very healthy and the growth in profitability is also pretty healthy, north of 20-odd percent.

Sounds like if you added those three things together, you'd get something north of $0.5 million in incremental expense. I'm guessing based on the number of heads, plus the rent, is that the right ballpark?

Oh, yes, for sure.

Okay.

And Jordan, if I could just jump back for one second, you made a comment about the acquisition of TechnologyGuide adding a lot of sellable inventory for us and certainly that's true. The thing I would point out is that the advertising -- our advertising sales on to the inventory of TechnologyGuide is -- I would say the expectation is going to be a slow ramp for us on that front. TechnologyGuide's primary revenue streams actually are more cost per click revenue streams based on the pricing information that's being provided on those sites.

The advertising relationships that we would need to take advantage of in order to sell into that inventory are relationships that are a little different from the ones that we have currently on the enterprise side of those companies, if that makes sense. So companies like Dell or Lenovo, these are companies we call on, we're not necessarily selling to those units because we haven't previously had inventory to sell them. So the expectation I set on that is that we'll see a slower ramp with regard to our ability to sell advertising revenue onto that inventory going forward in 2007.

Thank you very much. I appreciate it.

And we'll take our next question from Jim Friedland with Cowen and Company.

Thanks. First a couple of numbers questions. On the call, it sounded, I think you said you were going to have an effective tax rate of 41% and it looks like you did 40% in the quarter. Is that 41% for Q3 and Q4, for the full year or how should we look at that? Because in Q1, you actually had a pretty low effective tax rate.

I'll follow-up after you answer.

Okay. No, that's a good question and I'll give the people on the call some kind of a guidance on how to approach effective tax rates. I think the way to go about it is to apply a 50% effective tax rate on the GAAP income before taxes. So that includes stock-based comp. if you take that approach.

What I was referring to on the 41% was we currently file, federal of course, and in two other states and our federal tax rate is 35% and the effective state tax rate after deducting states is about 6%, which comes out to 41%.

But from a modeling perspective, I would suggest taking 50% of GAAP taxes before -- income before taxes. That would be including stock-based comp. And on a four quarter basis, that would be an appropriate method.

Okay. Got you. Yes, I was referring to like a non-GAAP number, but that makes sense.

The next question is on the print revenues. They're declining year-over-year, but they actually did bump up sequentially and we thought it would decline a little faster. What -- was there anything that was -- were there any positive surprises there or is it just Q2's a little better than Q1 for print?

I would characterize some positive surprises there, although I would caution that I wouldn't expect it to continue, certainly, throughout the rest of the year or certainly as a long-term trend. In Q2, we saw some larger advertisers come into the books. The print properties tend to be more reliant upon these large advertisers that have more of a focus on brand advertising. So we did see that in Q2. On a going-forward basis though, certainly the long-term trends for print are generally as we've outlined them.

And the last question is on acquisitions or potential acquisitions and I'm not talking about the small tuck-ins, sort of the $15 million type acquisitions. What does the pipeline look like and as you think about the company, is this something -- should we expect a couple of acquisitions a year, international, U.S., any color you can give on how you expect to grow the business with acquisitions would be helpful.

Yes, so in terms of acquisitions, we're always looking and we're very opportunistic. So it's hard to forecast because we've looked at a lot of things. Most of them aren't interesting to us. Then the ones that are good, they need to have a reasonable price and there's a lot of people have unreasonable expectations. So it's really difficult to forecast against acquisitions, but we will continue to be very opportunistic and when the right ones come along that meet our criteria, that's definitely part of our growth strategies going forward.

So I really wouldn't limit, I would say it's just U.S. or it's just international, it's really going to be on a case-by-case basis. But I think that we're confident that we're going to be able to have very strong organic growth as we continue to take advantage of this shift from traditional media to online media and that growth historically has not been tied to overall IT spending. IT spending over the last few years has been single-digit growth, but the online ad business is growing much faster, because people are shifting those dollars. So we're -- we think that the organic story is very good and we think we're going to be able to augment that with good acquisitions as they come up.

Okay. Thanks.

Thank you, everyone. That does conclude the question and answer session. I'd now like to turn the conference back over to Greg Strakosch for any closing remarks.

Great. Well, thank you, everyone, for taking the time to call in today. I thank you for your interest in TechTarget and we look forward to talking with you next quarter. Good night.

Thank you. That concludes today's conference. You may now disconnect.