TechTarget Inc (TTGT) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TechTarget Second Quarter 2011 Conference Call and Webcast.

My name is Kendall, and I'll 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'll be facilitating a question and answer session for today's conference.

(Operator Instructions)

I would now like to turn the call over to 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 of the earnings release process that we began using last year, are using today, and plan on using going forward.

As you saw, we issued our press release at 4 p.m.

today and, as we previously announced, in order to provide the usual update on the business ahead of this call and hopefully save you all some time and effort, we have posted on the investor information section of our website and furnish with our 8-K filing 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 completed 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 or 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 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.

Thank you, Rick, and I thank you for calling in today.

Despite the cautious macro environment and relatively flat IT marketing budgets, we are very encouraged by our results and outlook.

We continue to benefit from the shift from traditional media to online media, market share gains from our Activity Intelligence platform, and continued robust growth outside the United States.

Online revenue grew 17% in the quarter.

Online revenue growth for the first six months of the year was 14%.

Midpoint of guidance calls for 17% online revenue growth in Q3.

We are also reaffirming our annual guidance of online growth rate of 15% for 2011, 37% growth for adjusted EBITDA, and adjusted EBITDA margin of 25% for the year.

I will now open up the call for questions.

(Operator Instructions).

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

Please proceed.

Thanks, guys.

Nice quarter.

Just two quick questions, and apologies about the background noise.

I'm on the road today.

Greg, first, is your guidance doesn't imply any weakness, and most of these allocations for 3Q would have been made a few months back.

And I know you reiterated full year.

But have you seen any indication from your customers in the past few weeks or any cancellations or any change in kind of the dynamic given what's going on in the world right now?

And then second question, for Don, you mentioned a new dashboard a couple of times in your prepared remarks.

Can you just talk about how this changes the relationship you have with some of your top 12?

And can these tools allow TechTarget to extract more budget over time?

Thanks.

Sure.

So, in terms of the environment, I'd say all year we've been operating in the same environment.

It's been -- people have been cautious.

IT marketing budgets are relatively flat, and they have been for the past year or so.

And we've been able to grow in the neighborhood of 15% online in this flat budget environment because we're able to take share due to the shift from offline to online, the Activity Intelligence platform is being very well received, and also we're experiencing very robust growth outside the US.

So I'd say that the environment the last couple of weeks, obviously people are still cautious, but that's not really a big change from what we've seen over the past year or so.

So, in general, companies are still running their businesses, keeping their heads down.

They need leads.

They've got revenue targets to hit.

So it's -- that's what we're seeing, kind of a continuation of that environment.

And this is Don.

In a difficult economic environment, and if it does, in fact, get even more difficult, I think the offerings that we've put out with regard to Activity Intelligence become that much more important.

Essentially, the value proposition for Activity Intelligence platform is to help our customers make better use and more effective follow-up for the leads that we send them.

And that's going to prove to be true and going to prove to be necessary for all the customer segments that we do business with, US particularly.

About the top 12, I think those top 12 customers really struggle with regard to the complexity of getting our information out to highly distributed sales forces.

And the dashboard tool that we've just recently announced is going to simplify that dramatically.

It's going to make it a lot easier for an inside sales rep or for a lead development rep inside one of those very large accounts to get access to this additional information that we collect at TechTarget about that lead and about that account.

Over time, not just at the top 12 customers, but at -- within all of the customer segments that we service, providing this dashboard service is going to make our leads look much more valuable vis-a-vis any other source of leads that they get.

And that is what is going to allow us to get more budget from these customers.

Great.

Nice quarter, guys.

Thank you.

Thank you.

Your next question comes from the line of William Bird with Lazard.

Please proceed.

Thank you, guys.

Was just wondering if you could talk about kind of in the past, when your business has softened, where have you seen it first and how are some of those properties doing now?

This is Don.

I don't know if I would characterize that at a property level.

I might look more to customer segments.

We talk on our earnings -- prepared comments for the earnings calls, we often talk about these three different segments.

You have the large guys that Ross was just asking about, the midsize guys, which are the top 100 customers, excluding the top 12, and then our smaller spenders.

The midsize and the smaller spenders tend to be much more macro sensitive than the larger advertisers.

They tend to spend their way through downturns.

So if we were to see a significant weakening in the business, I think that those are the segments that we would see it within first.

Ross had mentioned in his previous question that he was surmising that much of our Q3 business was committed to previously.

And I don't know if that's entirely true.

We do sell a decent amount of our business within the quarter, and when we give our guidance, we're doing it based on an analysis of our pipeline at that point in the quarter.

So, some of that is factored in here, right?

Our customers, the midsized customers and the smaller customers, have enough of a pipeline going with us right now that we're comfortable with the guidance that we're providing to the Street.

If, in fact, the environment worsened a lot, I think those are the two segments maybe going into Q4 that we would see that show up within first.

Makes sense.

And so as you lay out the year, does it -- what does it assume?

Is it more or less a steady state?

Steady state with regard to those segments?

Steady state with regard to kind of how the business is right now.

Yes.

I mean obviously we can only set our forecast based on what we know currently.

And as I said, it's not like Q3 was completely baked going into the end of June.

We actually sell a good amount of our business within the quarter.

So I think that we look at our guidance and we look at the current state of the pipeline and we feel like in terms of peoples' within the quarter spend, they factored in what the overall environment looks like.

One of the things worth noting there is in Q2, when I was talking about those different customer segments, we saw really strong growth from both the midsized segment and the small customer segment.

And as Greg pointed out, this entire year is not like we saw in the first half, big growth within marketing budgets or big expansion of IT marketing spending.

We've been operating in a fairly flat environment year-to-date, so the kind of growth we saw there, I think, was an encouraging sign for us as we head into the second half of the year.

So our assumption is that the environment stays the same and we'll continue to take share in a very aggressive way.

In terms of the last two weeks and the turbulence it's been at the macro, we haven't seen any sort of drastic changes in customer behavior at all.

People are still continuing to operate the businesses the way they have been.

Great.

Thank you.

And I was wondering if you could talk a little bit about the RapidBuyr alliance and the opportunity you see there.

Yes, we think that's a good opportunity for us.

As you know, there's been a proliferation of these daily deals types companies.

But RapidBuyr we are very interested in working with because they have a particular focus on the B2B space, and that's a service we don't currently offer to our user base.

We have some sites, I think, that are very well suited for this.

For example, our technology guide portfolio of sites, sites like notebook review and digital camera, these sites that focus more on the consumer oriented devices and the overlap [there with SMB].

Those are sites and that's an audience that I think this could work very well with.

So we're excited about the partnership.

We're doing some testing of that in Q3.

And I think we'll roll that out more aggressively as we head into the latter half of the year.

Great.

Thank you.

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

Riley & Co.

Please proceed.

Yes, thank you very much.

So, you spoke in detail about the dashboard.

Are there any other improvements in the platform that you have planned for the next 6 months or 12 months?

Secondly, Computer Weekly, obviously that's a big brand name.

What are your plans regarding that particular site for now?

And the third is do you have anything else in the new product pipeline?

I mean the Activity Intelligence platform was launched a couple of quarters back.

Is there anything else?

And I understand you can't disclose everything, but are there big products like that coming down the pike?

Okay.

This is Don.

I'll see if I can take those in the order they were asked there.

With regard to the dashboard, we really do have a lot planned with regard to future enhancements of that platform.

It would be no fun if I told you about all that stuff today, so you'll have to stay tuned in for that.

But suffice it to say that as I alluded to in my comments, we would see ourselves rolling out features that ultimately would prove to be additional revenue opportunities for us.

The dashboard itself is not an incremental revenue stream.

We are including that as a base part of the service with our lead generation offerings in an effort to make that offering even more useful and ultimately to improve revenues by getting a bigger share of customer budgets, kind of closer periods within renewals.

So that's the immediate strategy there.

Ultimately we'll roll out some new services that would be additional fees for our customers, additional services that we could provide to them, and thus incremental revenue streams.

But we'll be doing announcements on new features and new products related to Activity Intelligence for the foreseeable future.

I think we'll have a lot to say on that front.

With regard to Computer Weekly, our initial integration efforts there are going very well.

As we alluded to on the last earnings call, we have a lot of work to do there.

That's a property we think that needs to get a lot of investment with regard to new product offerings.

We're completely rebuilding the website.

We're making sure we have the appropriate staffing in place for it.

So we're very excited.

Initial conversations with advertisers on Computer Weekly have been very, very bullish.

They're excited that we've taken ownership of it.

They're excited about the level of investment we're putting into it.

And we think that as we head into 2012 that starts to be a more material revenue contributor for us based on the work that we're doing for the remainder of this year.

And then with regard to other new product offerings, certainly we always have things in the mix here.

Earlier this year separate from Activity Intelligence we talked about our Engage family of advertising offerings, including Brand Engage and Demand Engage, new ad units that allow our advertisers to get higher levels of engagement with their audience and allow our audience to interact with more of their content assets.

So I would look for us to continue to push our product offerings particularly in the area of branding because we think that's a good growth opportunity for us.

We have a full roadmap with regard to Activity Intelligence specifically, as I alluded to, that'll keep us very busy.

So it's always a big priority here to be coming out with new product offerings and we don't plan on letting the foot off the accelerator on that front for quite some time.

If I can have just a follow-up question.

I think this comes off the question asked by the previous gentleman.

In terms of the segments which you can see weakness, obviously we're seeing different sort of divergent trends.

The networking sector seems to be competitive, HP trying to take on Cisco and growing market share.

So that's potentially a benefit for you.

But Friday, Brocade came out and reduced guidance and the stock was smacked.

If I can ask again, I mean are there particular segments that we can look to to identify [its] strengths and weaknesses, especially as you go into the second half of this year within a very complex macro environment?

Yes.

I mean, one of the nice things about the IT market is it's highly, highly competitive in every single segment.

And one of the places where those battles are fought are marketing and advertising, which benefit us.

So we cover the whole IT market.

There's certain pockets of the market that are doing better than others.

I'll point to cloud computing as very -- is very strong.

Server virtualization, desktop virtualization, which is somewhat related to cloud, that's very strong.

The storage market continues to be good.

So and then the other thing is in all the other markets you have very, very significant competitive battles going on.

The HP/Cisco is one.

You have SAP/Oracle.

You have ECM/IBM.

All across the IT sector there's tremendous competition, and that helps us.

As I said, one of the main battle grounds of those competitive battles is marketing.

So that's always been a good characteristic of the IT market that's benefited us.

Thank you.

Ladies and gentlemen, that concludes the question and answer session.

Thank you for your participation in today's conference.

You may now disconnect.

Have a great day.