TechTarget Inc (TTGT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Techtarget First Quarter Conference Call and Webcast.

My name is Kiersten, I will be your coordinator for today.

At this time, all participants are in listen-only mode.

Following introductory remarks by Greg Strakosch, Techtarget's CEO, Chairman and Co-Founder, we will be facilitating a question-and-answer session for today's conference call.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

I will now turn the call over to Mr.

Rick Olin, Vice President and General Counsel.

Thank you, Operator.

Before turning the call over to Greg, I want to briefly remind everyone on the call that the earnings release process, which we began using last year, are using today and will be using going forward.

As you saw, we issued our press release at four o'clock today, and as we previously announced, in order to provide the usual update on the business ahead of this call, and hopefully saved you all some time and effort, we have posted on the investor information section of our website and furnished with our 8-K filing, today, management's prepared remarks.

These remarks are meant to function as a script otherwise would for this call.

On the call today, Greg will provide a brief summary of our financial results for the most recently completely quarter and then management will devote the rest of the call to answering your questions.

Additionally, I'd like to remind everyone that during the course of this conference call and the Q&A session, Techtarget will make certain statements that may be considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including particularly 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 and that actual results may differ materially from those contemplated by such forward-looking statements.

These risks include, market acceptance of our products and services, relationships with customers, strategic partners and our employees, difficulties in integrating acquired businesses and changes in economic and regulatory conditions or other trends affecting the Internet, Internet advertising and information technology industries.

For a description of these and other risks, the company encourages you to read the section entitled risk factors in our annual report, filed on Form 10-K as well as our other filings we have made with the Securities and Exchange Commission.

In addition, the forward-looking statements speak only as of the date of this call and the company undertakes no obligation to update these forward-looking statements.

Following Greg's introductory remarks, in addition to Greg, the following members of our management will be available to answer your questions.

Don Hawk, President and Co-Founder and Jeff Wakely, Chief Financial Officer and Treasurer.

I'll now turn the call over to Greg.

Thanks, Rick.

Although a handful of large programs slipped from Q1 into Q2, which was reflected in our Q1 results, we are continuing to see very strong momentum in the field.

The growth that we are achieving continues to come from a combination of the continued shift from traditional media to online media, market share gains, primarily as a result of our new Activity Intelligence product platform and continued strong growth outside the US.

These trends, combined with our Q2 forecast of 18% online revenue growth, the conversations we are having with customers about their advertising plans for the second half of the year and analysis of our pipeline gives us the confidence to make the following increases to our annual forecast at this time.

Online Revenue growth rate to 15% from 14%, event re growth rate to 5% from flat and adjusted EBITDA growth rate to 37% from 33%.

I will now open the call up for questions.

(Operator Instructions).

And your first question comes from the line of Ross Sandler with RBC.

Please proceed.

Hey, guys.

Just three quick questions.

First, is the push-out from 1Q to 2Q that you saw just a function of timing or do you think -- do you get a sense that any of these guys are experimenting with new marketing programs or is it just timing of campaigns?

Yes, definitely timing.

Q1, seasonally, is a slower quarter because companies come into the new year, always don't have their budgets set and don't have their product plan set.

So most new product launches are in Q2, and then the end of Q3, September, and in Q4.

So seasonally, Q1 is always slow.

So I would just say it's 100% a timing issue.

Okay.

And I'm guessing, last time we spoke was always mid-Feb, so this would have been stuff that you thought would hit in second half of the quarter and it's getting pushed into 2Q.

Is that a fair characterization?

Yes.

Yes.

Exactly.

And then the second question, if we add up the 10% online from 1Q, the 18% guidance for 2Q, I'm getting 14% for the first half and then you're raising the full year.

So what are you guys seeing that gives you the increased confidence in an acceleration in the back half of this -- is international becoming a bigger part of the mix?

Is it certain advertiser categories picking up?

Or just a little color on where that confidence is coming from?

Yes.

And I would say it's a combination of all of those things.

I think that we're making really good progress with advertisers.

We've got some new product roll-outs that we're very bullish on.

We continue to make very good progress internationally.

And it's just all those things combined and conversations with customers about what they're going to be doing in Q2 and the second half of the year.

That's where it comes from.

It's a combination of things.

Okay.

And then the last one's for Jeff.

So it looks like you're increasing the margin guidance a tad.

Is that just coming from the higher revenue run rate from the fixed costs?

Or is there any other kind of efficiency?

It looks like events is kind of the biggest delta in the guidance.

Can you just give us a little bit more color on the EBITDA?

Yes.

Sure.

That comes from the, as you had said, the initial -- the higher revenue, based on how our cost structure works, right?

We have a very high incremental EBITDA margin, so as that revenue ticks up, it has a significant impact on the EBITDA line.

Okay.

Thanks, guys.

And your next question comes from the line of Sameet Sinha with B.

Riley.

Please proceed.

Yes.

Thank you.

So, I mean, you spoke about continuing flat, at budget environment.

Most tech companies are generally reporting pretty good numbers.

What do you think is holding them back?

I mean, it seems like a very ripe environment for incremental spending?

The second thing is in terms of your -- even guidance seems to be going up in that business.

Do you think you're going back into it?

I mean, from your initial -- initially you had thought of pulling back.

It seems like there is increased demand for those events.

Is it increased demand or do you think it's kind of -- it's a loss leader to kind of drive business to your online revenues?

And third is, in terms of computerweekly.com, any initial revenue estimates?

Do you think you'll have incremental expenses to kind of build out that side?

That's it, please.

Sure.

So in terms of the environment, I would say we're not seeing broad, across-the-board increases in ad budgets.

And I think your question is right, because all -- many tech companies are doing better.

And I think that most of them, some are, but most are not -- the better results are not a result of robust revenue growth.

It tends to come, they've been -- done a very good job on cutting expenses.

And when you -- and when you say what's holding people back, it's for people to increase their ad spend.

It's really, when are they going to kick in?

And they have to be very confident and optimistic.

And I think what's holding people back is no surprise, it's the main issues with the economy, in terms of unemployment, gas prices and deficits.

So I think once people get comfortable that we're out of the woods and the economy -- the IT market's going to continue to grow, we'll see ad budgets start to grow again.

And when that happens, that's going to be very good for us.

Because any new incremental advertising dollars to the budget is going to be allocated online.

And since we're the clear leader online, we're going to -- we're definitely going to benefit from that.

In terms of events, I think what we're seeing there is we're just doing a good job of doing very targeted events and selling more integrated programs with the online, that's seen a slight uptick.

So there's not -- and it's 5%.

So it's not really anything major there.

I'll have Don talk about the CW.

Hi, Sameet, this is Don.

On Computer Weekly, your question was about the revenue impact of that and also the expense impact of it.

Especially in the short term here, in Q2, there's very little CW revenue built into that forecast.

We just bought it and completed the transaction at the end of April.

And in the situation where you already have revenue on the books, you need to write down that revenue.

So it's fairly immaterial to our Q2 forecasts.

And then for the rest of the year, I wouldn't say it's a substantial driver for us in 2011.

As I pointed out in the comments, we're really seeing Computer Weekly as a strong driver of some of the things we're already taking advantage of on the international growth front, particularly in Europe and in the UK.

And then we see it becoming much more substantial for us going into 2012.

With regard to the expense side of it, while we are making investments in rebuilding the website there and repositioning some of the online offerings, we're not seeing a level of investment there that would require anybody to change their models with regard to cost basis for the business.

So I would say it's not a material impact on the top line or the bottom line in 2011.

Okay.

Thank you.

And your next question comes from the line of Kevin Allen with Needham and Company.

Please proceed.

Acquisition.

Can you just -- can you tell us how many employees you may have picked up from that and also what we should be assuming in terms of cash outlay for the deal?

Sure.

It's about 15 employees.

And we are not disclosing the purchase price on that transaction.

Again, it's not of the size where it was material enough that we needed to be disclosing that.

Got it.

Thank you.

And at this time, there are no further questions in queue.

And you actually do have a question from the line of Sandeep Aggarwal with Caris and Company.

Please proceed.

Thanks for taking my question.

Greg, yes, two questions please.

One is, just if you can provide a little bit more color on the intraquarter trend for the March quarter in terms of was there any -- I know one is a seasonality, but was there any one-time, maybe, reduction of budget or maybe delay of budget for the March quarter commitment?

It seems like it's -- your numbers came in at the lower end of your guidance range.

So is there any run-time issue, other than the seasonality?

And then as you see better trends for the event business, would you reinstate some of the events, which you can still bag, and then at scale, would you also see a margin improvement in your event business?

Thank you.

Yes, so in terms of what happened in the March quarter, it really wasn't budget cuts.

It was really just timing on delivery of deals.

So when we do the forecast of deals we have in, we have a certain assumption of when we're going to get the content and the deliverables from the customer.

And if that slips out, if the customer slips -- giving us the materials for two or three weeks, that affects how much revenue that we can recognize in that specific period.

So none of this -- so it's really just a matter of when the revenue is recognized.

Not a matter of budgets going away or any deals going away, it's just a delivery.

So it's really just a timing issue.

And if you look at it, there's only a few hundred thousand dollars.

It's just a handful of -- a couple of large deals where it slipped from Q1 to Q2.

So we'll be recognizing that revenue in Q2.

In terms of events, your question about events, really what our strategy is, we've really moved away from multi-day events, where people need to travel to it.

So the vast majority of our events today, and this is very different from what it was five years ago, the vast majority of our events today are half day or one day events where we will take that event to multiple cities and people do -- attendees do not have to get on a plane.

So that's the model going forward.

And if we -- if there's demand to add new events, they will be that kind.

So we will not be going back to multi-day destination events.

And I think in terms of the margins, I think the margins that we're seeing now, in the 60s gross margins, is where you can expect them to be on a going forward basis.

Thank you.

And your next question comes from the line of Sameet Sinha with B.

Riley.

Please proceed.

Yes.

Thank you.

Actually, you mentioned that there were market share gains due to your new AI platform.

Can you talk a little bit more about it?

And is this because no such platforms exist currently in the industry?

And you also speak about how this -- the next version can be scaled, let's say, into the second half to -- which would make it easier to be utilized by a mid-sized kind of customer.

How much smaller customers?

Is that in version 3.2?

That's it.

Thank you.

Sure.

This is Don.

I'll take that.

So with regard to how Activity Intelligence is helping us today, it is definitely a capability that is unique in the marketplace.

We have better intelligence about what our users are doing on our websites and we're in a position to be able to share that information with our customers in a way that allows them follow-up on the leads more effectively.

And for the customers who are utilizing this information, today, it is helping them do that follow-up more effectively.

They're seeing this unique.

So it's helping us get bigger deal sizes.

It's helping us with renewals.

It's helping us get into incremental budget.

So that's absolutely been a success for us on every front, really.

And it's really driving a lot of the success we've been having for the last 12 months or so.

Having said that, we definitely see opportunities to expand the services that we're offering to our customers with Activity Intelligence.

I would say that the biggest limiting factor for a lot of our customers is the vehicle through which they receive that information.

In a lot of cases they have a difficult time getting their internal CRM systems to make good use of the information that we're sending over.

So that's a big area of development for us.

We're looking at more useful ways to provide this information and we're also looking at expanding, fairly dramatically, the number of data points that we provide about the leads that we generate for these customers.

And in doing that, we're going to allow their internal sales forces or their internal tel qualifying teams to do even more intelligent calling and follow-up with regards to the leads that we're generating.

So just kind of furthering this gap between us and the rest of the market, with regard to the actionable information that we can deliver with regard to leads that our customers generate with us.

But your other question was about whether or not the next generation of this allows us to get kind of further downstream with regard to company size, in terms of our customers that can make use of this information.

And I think the answer there is absolutely yes.

Again, kind of building on the point that I just made there, since our customers are struggling a bit with kind of the vehicle through which they make use of this information, if we can provide solutions along those lines, we enable smaller companies to start to take advantage of that type of information.

And that's definitely the avenue that we're pursuing here and I think as we get into the latter half of the year, we're going to be able to have some offerings around that and be able to bring this type of benefit to bear against a broader section of our customer base than even we can do today.

And can you -- you might have done this before, but have you given out data regarding your renewal rates and I know you mentioned flat growth amongst your top ten advertisers.

If you haven't given out that information, can you do so?

Thank you.

With regard to renewal rates, specifically, Sameet?

Renewal rates and growth from top advertisers?

I think it was flat, right?

Yes, it was a little better than flat, but it was a single-digit growth rate with what we call our large customer tier, which are those customers that are defined as the top 12 IT vendors in the market by size.

We've kind of used that as a consistent benchmarking tier as we've made our quarterly comments here on the earnings calls.

So -- and as I talked about in my comments there, really, I think that was the result of some situational things that are going on here with particular accounts.

As Greg alluded to, we had some larger deals with some of these accounts that slipped into Q2 or got off to late starts, so that's certainly -- when you're dealing with a very small sample size there of 12 vendors, you can see some fairly dramatic twists and turns with regard to that year-over-year growth rate.

With regard to renewal rate, we do comment on that in the Q.

We have a sequential top 100 customer renewal rate that we talk about that has very consistently been in the mid 90%s or higher.

And that trend continues.

Thank you.

And your next question comes from the line of Mark May with Needham and Company.

Please proceed.

Thank you.

I had three questions, if I could.

First was I think historically the revenues, and there's been, obviously, variability over the years, but generally from Q2 to Q3, they've been flat to up seasonally.

And I wonder if you expect to see that same sort of pattern, understanding that Computer Weekly will have some positive impact there, but just wondered if you could kind of help us think about the seasonality this year?

Secondly, in terms of the Q1.

I know it was a relatively immaterial number, but I wondered, I know some of your contracts have minimum lead kind of click view thresholds, if you will.

Was part of the dynamic in Q1 that meeting some of those performance metrics was pushed into Q2?

And then I had a third question.

A follow-up.

So in terms of the sequential, I think, historically, how the revenue kind of goes, Q1 is the smallest quarter.

Good sequential growth from Q2 versus Q1.

Q3 versus Q2 is flat to down a little bit, because of the summer months, July and August, September's a very strong month.

And then Q4 is always the -- is always the biggest quarter of the year.

Would you expect that to kind of repeat itself this year?

Or --

Yes.

Yes, I would see that this -- that this -- there's no reason not to think that this would be a normal year.

So I would expect Q3 to be in the neighborhood of Q2, flat to down a little bit, not a significant amount.

And then Q4 being significantly up from Q3.

Okay.

Thanks.

And then I'll take the performance metrics questions that you had there.

We didn't see any performance metric decline in Q1.

One of the comments that I've been trying to reiterate over the last few earnings calls is that we've really invested a lot of time, energy and money in our delivery capabilities and I would say to you that our delivery capabilities against lead-gen programs are in as good of a state as I've seen them in our history here at Techtarget because of those investments that we've made.

You always have some programs that may bridge quarters or drag out a little bit, but we've tracked that fairly closely and I wouldn't say we saw anything out of the norm there in Q1.

So it wasn't that revenues were dragging out because we couldn't deliver on them.

Okay.

Great.

Thanks.

And then my third, my follow-up, was can you talk at all about some of the new innovations or strategies that you're undertaking to drive new user acquisition and/or greater engagement by your existing users?

Yes.

Sure.

I mean, Activity Intelligence -- I'll take the latter half of that first.

Activity Intelligence is a big part of how we drive additional engagement.

Because if we have a very good sense of what our users are doing on our websites at any given point in time and what exactly that they're interested in, it actually helps us facilitate either additional activity on that -- on those topics specifically or additional activity on topics that are somewhat adjacent to those topics.

So a big part of our messaging strategy to our users is to look at what are they interested in currently, what else can we put in front of them, what else can we promote to them, can we encourage them to take a look at that might help drive additional activity along those topics?

So all the data warehousing that we're doing, all the kind of in-depth analysis that we're doing, really goes to that end, with regard to driving additional engagement.

With regard to member acquisition, again, that's another area we've put a lot of time, attention and dollars into over the last 12 to 18 months.

A lot of that has to do with optimizing the pages upon which people land, when they come to our websites.

We've done some fairly substantial overhauls of our landing page strategies over the last 12 months, with an eye toward increasing member conversion metrics.

And we've been fairly successful with that.

Another thing that we've done fairly recently, we didn't really talk about this in the release or the earnings call, but we've completed a fairly substantial design overhaul of our websites, with an eye toward making our sites easier to navigate, helping users find content more effectively and helping facilitate this member conversion process that we take them through.

So that kind of addresses both questions that you're asking there, both with regard to member acquisition and engagement.

Okay.

That's very helpful.

Thanks.

Yes.

And your next question comes from the line of Ross Sandler with RBC.

Please proceed.

Guys, one last follow-up on the top 12.

So even if we kind of normalize for 1Q and 2Q, and this category has been kind of an underperformer.

I know you're doing all kinds of new and interesting things on the AI side to kind of move the needle with these budgets, but do you think it's a case of lack of overall budget growth from these guys, because their comps are tougher, because they never cut before?

Like during the downturn?

Or do you think it's a case of Techtarget not getting an increasing share of the online budget?

Or what do you think -- what's it going to take to get the top 12 back to that kind 15%, 20% budget growth?

Is it all macro?

Do you have any sense on kind of what could get us there?

I think there's a few dynamics at play there.

Again, as I alluded to earlier, I'll start with kind of the simplest one, right?

When you have 12 customers, you've got a small sample size and you get a couple of situations that are meaningful in one direction or another and it can flop that growth rate around quite a bit, right?

So in the last couple of earnings calls, I believe we have alluded to the fact, at least it was the last earnings call or the earnings call before that, we talked about the fact that we had a fairly large customer that completed a fairly significant acquisition and on a year-over-year basis, we were kind of trying to anniversary through the period in which those are two separate companies.

So that impacted the growth rate there for a while, when you talk about the segment, as you characterize the historically underperforming, maybe, over the last few quarters.

I would say that that was actually a fairly significant driver over the last couple of quarters.

In this quarter, in particular, again as we alluded to in the comments, we had some large customers that had deals shift in terms of their start dates and started later in Q1 than we had anticipated.

And, again, that's a driver of the growth rate.

I would characterize what's going on with these large accounts as very situational.

We are very bullish on the growth prospects that we have with these largest accounts.

If you look at the mix of growth rates for individual vendors within this top 12, we have some growth rates that are in there that are very substantially.

30%, 40% to 50% on a year-over-year basis.

So, we're very confident that we're getting budget as it comes up.

One other thing that I'll point out, Ross, that you alluded to, is worth acknowledging is that from a comp standpoint, I think you make a good point there.

The largest vendors spent a lot more heavily through the downturn, than the other tiers that we look at.

So when you look on a year-over-year basis, some of that is playing through, for sure.

But even having said, as I just said a second ago, we have vendors within that top 12 that had very, very strong growth rates.

So I'm fairly confident, as we get later in the year here, we're going to see that segment performing as expected for us.

I don't see that being a weak spot for us at all.

Okay.

So like later in the -- and you think that all the kind of tough comp issues around the two accounts consolidating to one and you'll start to lap that by back half of this year?

Yes, I expect that.

Okay.

And your next question comes from the line of Dennis Kelleher with Canaccord.

Please proceed.

Yes, hey, guys.

A quick housekeeping question, just on international.

What percent of revenues did that represent this quarter?

And if you could get a little bit more granular on what countries are driving the -- that category?

Sure.

I'm sorry, what was the second part of that question?

Just what countries in particular are strong?

Got it.

Okay.

So in Q1, that was low double-digits in terms of online -- of total online revenues.

Which again, is consistent with this trend that we have been seeing here.

We see this percentage of geotargeted programs continuing to increase with regard to our total mix.

With regard to countries that made that up, certainly EMEA is the strongest area of growth for us, by a long shot, right now.

It's really driving a lot of the international growth.

But we're very excited because we see, during the course of 2011, we're really starting to get to a point of critical mass with regard to APAC, where APAC can be a good contributor to us toward the latter half of this year and heading into 2012.

The Computer Weekly acquisition that we made was really an investment in the future growth prospects that we see in the UK and in EMEA more broadly.

That's a great brand in the UK.

It is a UK-specific brand, so it doesn't have audience, necessarily, outside of the UK.

But all these pan-European programs that we're doing have the UK really as their foundational country.

It's a big component of the pan-European programs that we do.

So that's the reason we made that investment and they're doing the work to rebuild the website and reposition the offerings.

We think that that is a good investment in the growth prospects that we're seeing in that region.

Great.

Thanks a lot.

And since we have no more questions today, that concludes our call.

Thank you.