TechTarget Inc (TTGT) 2013 Q4 法說會逐字稿

Good day and welcome to the TechTarget 2013 fourth-quarter earnings release conference call and webcast. All participants will be in listen-only mode. (Operator Instructions).

After today's presentation there will be an opportunity to ask questions. (Operator Instructions).

Please note this event is being recorded. I would now like to turn the conference over to Mr. Bob Kellegrew, General Counsel. Mr. Kellegrew, the floor is yours, sir.

Thank you, Mike. Before I turn the call over to Greg, I want to remind everyone on this call of our earnings release process.

As you saw we issued our press release today at around 4:30 PM. As previously announced, in order to provide you the usual update on the business ahead of the call, we have posted a letter to the stockholders from Greg on the investor information section of our website.

We've also furnished it with our 8-K filing. This stockholder letter is intended to provide supplemental information about the quarter ended December 31, 2013.

On the call today Greg will briefly summarize 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 would 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 the future financial results. Investors are cautioned that any forward-looking statements are not guarantees of our future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

These risks along with other items such as 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, other trends affecting the Internet advertising and information technology industries. For a description of these and other risks we encourage you to read the section entitled risk factors in our annual report filed in Form 10-K as well as other filings we have made. 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 team will be available to answer your questions. Mike Cotoia, our Chief Operating Officer; Janice Kelliher, our Chief Financial Officer; and Kevin Beam, our President. I'll now turn the call over to Greg.

Thank you, Bob. We look forward to returning to growth in 2014. We are forecasting double-digit revenue growth and at least 50% adjusted EBITDA growth in 2014.

While we remain cautious about the general health of the IT market we are very excited about the opportunity that our proprietary purchase intent data provides us to build the meaningful business on top of our core online marketing business. In addition, we are confident in our ability to continue to grow our international business by 20%-plus.

As always we remain focused on carefully managing expenses, investing appropriately and maintaining healthy cash flow to drive shareholder returns. I will now open up the call to questions.

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions). Marco Rodriguez, Stonegate Securities.

Good afternoon, thank you for taking my questions here.

I was wondering if you could talk a little bit more about IT Deal Alert. In your prepared remarks you talk about the long-term strategy of migrating customers to an annual subscription model. Can you talk in a little bit more detail exactly what you are going to be doing there to incent them to do that?

Yes, so it's happening right now is customers because it's a new product they are testing it on a quarterly basis. And then as we are going through some early first renewals they are still in test mode.

But what we have -- we have pricing in place that if people sign up for an annual subscription at a time, there is a 15% discount. So I think that second half of this year and into 2015 after people get comfortable with the product and figure out what the right run rate is for them, we'll start to have success migrating people to annual subscriptions.

Got it. And then in terms of the IT Deal Alert there, can you maybe share some additional feedback that you are getting from customers that are still in the testing phase? Are there any sort of overriding themes, or any feedback that has you making alterations to the offering?

Well, the feedback has been very good. So the first feedback that we are getting universally is that the data we are providing is extremely accurate.

So companies are matching it up against their pipeline and they are seeing that we have identified deals in their pipeline. And then they are contacting accounts that are not in their pipeline and they are also finding that there is deals that are happening there.

So the initial feedback is that the data is very accurate. And these are deals that are in process, so sales teams are very hungry to get these types of opportunities.

So the feedback that we are hearing from sales teams and through marketing teams is that they very much like the opportunities that we are providing for them and we are having conversations with our customers about other segments. We have this product in about 60 segments. Most customers are testing it in one segment but many of our customers can eventually buy more than one segment.

So that's what we are -- so the key thing is -- first goal is to get people to test. And then once they have tested and seen success, try to upsize the amount they are buying from us.

Got it. And just out of curiosity here, on the refresh you're going to have for the self-service offering, any color you can provide on what that's going to look like?

Yes, we haven't announced yet, we are going to announce it in the next couple of weeks, but that is going to be an annual subscription product. We will let people do a 90-day test but there won't be any ability to do a quarterly renewal.

All renewals after the 90-day test will be annual and it's going to be a product that is going to be fully integrated with salesforce.com, which is definitely something that makes it more useful for most of our customers. And we are very excited about this product. We think that it's going to be an offering that is going to really hit a need in the marketplace.

Got it. And then in terms of the overall guidance for IT Deal Alert, I think if I wrote it down correctly it's about a 3X, you're going to triple it there in fiscal 2014. Can you talk a little bit about the major assumptions or drivers you're looking at to arrive at that conclusion?

Yes, so we have about 1,000 customers. We've sold it to about 100 customers so far.

So the first assumption is that we'll continue to penetrate new customers. The second assumption is that we will have a very favorable renewal rate from those customers. And the third assumption is that we will be successful in upselling customers.

So if they start with one segment we will be able to get them into more than one segment. So while the product is still very new and we don't have hard metrics against things like renewals and upsells, the early indications on the accounts that have gone through the renewal process is very favorable.

So it keeps -- lets us be optimistic that we will have good success against all three of those metrics. And so we definitely need those things to happen to continue to grow it and I'm sure as you saw in the shareholder letter, we did say that we are forecasting 20% sequential growth from Q4 2013 into Q1 2014. So to have that type of healthy sequential growth we need to have success against all three of those metrics.

Got it. And last quick question and I will jump back in queue, on the international side, the plans you have laid out there in the letter for 2014, is there an assumption that you are scaling operations, or is the guidance just kind of a function of your existing footprint just riding along with the overseas online growth rate?

Yes, it's a combination, but we are continuing to add salespeople outside the US, so we have added additional salespeople recently in Singapore, in Australia, in Germany and France. So it's continued to add sales resources to further penetrate our customers there and tap into those international budgets.

Got it. Thanks a lot, guys.

Jeff Meyers, Cobia Capital.

Great, thanks guys. Greg, maybe you could talk a little bit about the expected seasonality for IT Deal Alert. Do you expect to have similar seasonality to your core business, or it won't exhibit that seasonality?

Yes, so I think that we do expect similar seasonality and basically that is for most of our customers are on a calendar year in Q1 is a slow starting -- it's slow starting part of the year -- budgets and marketing plans aren't fully baked at all of our customers yet. A lot of marketing spend is around new product launches and Q1 is kind of slow in that area.

It tends to be more in the spring and then September through the end of the year. So I think that you will see some of the same seasonality. And that's frankly one of the reasons that we are very interested in migrating this to an annual subscription, to kind of even out some of that seasonality and put more predictability into the revenue stream.

Got it. The 20% sequential growth you are forecasting for Q1 is inclusive of whatever trends in seasonality that there are?

Correct. Yes, we took that into account when we built that forecast.

Got it, okay. And then what about, what of the events business? It seems to be shrinking, is there some future disposal of that business, or what's the future of that business?

Yes, I don't think we will dispose it. We have definitely deemphasized. We took some more events off the calendar in 2014 versus 2013.

So the three good things about events are its 60% gross margin, so it's very profitable. We get paid in advance and. And then the most important strategic rationale is on all of our online products we are premium priced and the attendees of our events are the members of our websites.

So it lets our online marketers meet and see the high quality of our online audience and helps us cost justify that premium. So I think we will always have an event business but what we are really focused on is doing events that are easier to do, and no events are easy, but that are easier to do in terms of attracting audience and attracting sponsors.

Got it. And what about if you just look at calendar 2014 against calendar 2013, what sort of decline would you expect to see on a percentage basis in the events business?

I think events we would see somewhere to minus 10% to flat.

Got it. Okay. Thanks, guys.

Shawn Rassouli, Needham & Company.

Hi there. Thanks for taking my questions. I had a few.

So you mentioned that most of the customers, the IT Deal Alert customers, are testing the service within one technology segment. Just wondering if there are any specific segments in IT that are seeing better traction than others?

And as you try to upsell other segments, which segments do you think would be better positioned for that upsell opportunity? And how would the economics change?

I think you have mentioned that each deal goes for $25,000 to $30,000 a quarter. As you add on more segments how would the economics change?

Yes, so I'll take the economics question first. There is no discount for adding additional segments. So the only way to get a discount is by doing a renewal subscription.

So if it's $25,000 for 75 opportunities for one segment and if they want to get two segments, it's just 2 times that. In terms of segments that are popular, it mirrors where there's pockets of strength in the IT market.

So things like virtualization and cloud and those types of topics, where there's a lot of activity. But the 60 segments that we are in there are IT vendors in all of those spaces. So we picked those 60 segments because we think that all 60 of them will be viable.

Okay and in terms of the 50 net new adds in the quarter, can you give us the geographic breakdown of those? Are they mostly US-based?

Yes, it's predominantly US-based. We were, during the quarter, we were in beta outside the US but we are moving into full production in the UK at least in Q1. And we will have roughly about 20 segments that are live in the UK in Q1.

Okay, and one more for me. As you guide to your 20% to 25% growth internationally, I know you are doing a lot in various geographies, but can you give us a sense for where you expect that growth to come from maybe by geography?

In EMEA, first of all I would say we expect 20% growth in all three regions in EMEA, in Latin America and in Asia-Pac. So in terms of size, EMEA is our largest geography, A-Pac is second and Latin America is third.

Okay. Thanks for taking my questions.

David Cohen, Midwood Capital.

Thanks, guys. My question has been answered.

We're showing no further questions at this time. The conference call has now concluded.

We would like to thank management for your time and also thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you and have a great day everyone.