TechTarget Inc (TTGT) 2014 Q2 法說會逐字稿

Good day and welcome to the TechTarget Second Quarter 2014 Earnings Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by Zero. 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 call conference over to Mr. Bob Kellegrew, General Counsel. Please go ahead.

Thank you, Andrew. Before turning the call over to Greg, I want to remind everyone on the call of our earnings press release process. As you saw, we issued our press release at 4 PM today.

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 have also furnished it with our 8-K filing. This Stockholder Letter is intended to provide supplemental information about the quarter ended June 30th, 2014.

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'd like to remind everyone that during the course of this conference call and the Q&A session Tech Target 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 forward-looking statements are not guarantees of our future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements.

These risks, along with other items, 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, and other trends affecting the internet, internet advertising and information technology industry.

For a description of these and other risks we encourage 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. 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 available to answer your questions, Mike Cotoia our Chief Operating Officer, and Janice Kelleher, our Chief Financial Officer.

I'll now turn the call over to Greg.

Great, thank you, Bob. The momentum in our business continues, as evidenced by our healthy Q2 results and Q3 forecasts.

Online revenue grew 16% in the quarter over the same quarter in 2013. Our International business had another solid quarter with revenues increasing over 20%. IT Deal Alert revenue grew 20% sequentially to $4.1 million. IT Deal Alert continues to make traction in all important areas of revenue growth, new customers, renewals and upsells.

Adjusted EBITDA was up 92% to $5.3 million. Adjusted EBITDA margin was 20% and our gross margin was 73%.

The Company generated $9.6 million of cash in the quarter bringing our cash balance to $42 million.

We also announced today that our Board of Directors has authorized a $20 million stock-repurchase plan.

I will now open up the call for questions.

We will now begin the question and answer session. (Operator Instructions). At this time we will pause momentarily to assemble our roaster. The first question comes from Brian Pitz of Jefferies.

Thank you, great quarter; Greg, a couple of questions on Account Watch maybe you could help us with. Number one, can you give us a little color on the progress you're seeing with the rollout so far? Also, we're curious about how the initial feedback from customers is basically looking and we're basically wondering if you're seeing customers starting to test out multiple categories?

And then finally, I know it's early but looking at the customer base, how many of your customers are using both QSO and Account Watch? Is there much of an overlap there? Thanks so much.

Great, thanks, Brian. So the plan is that customers should use both Account Watch and Qualified Sales Opportunities because they have -- they offer different solutions and different benefits.

In terms of Account Watch, it's very early. We just announced it in March. And then what we're seeing is just kind of a normal 90-day sales cycle, a little bit elongated because we are integrating it with SalesForce.com, which means we have to have conversations with sales operation people or IT people.

So, we've been installing Account Watch at some of our customers. Early results have been positive. The pipeline is building nicely and we're -- we never thought that Account Watch would be a significant revenue contributor in 2014 because we knew there was going to be a ramp up, but we still think that it can be a good contributor for us in 2015. So I guess the summary is still very early days but so far so good.

Great and just maybe one additional one on International. We're hoping to get a sense for the progress you're making with the International rollout of IT Deal Alert?

We had -- so Q1 was the first quarter where we were out of beta with production. We had a very good Q1 and Q2 growth was very healthy, good sequential growth in Q2 versus Q1, faster than the overall growth rate for IT Deal Alert. We expect that to continue in Q3 because again, it will only be its third quarter.

But we're also rolling out some new geographies for IT Deal Alert internationally, so Continental Europe will have qualified sales opportunities in Q3. And we're also rolling out IT Deal Alert to Asia-Pacific region, which is completely new for us.

So, we expect both of those things to contribute to additional growth from just the normal bringing on new accounts, but those new territories should help us, again, in 2014 and especially 2015.

Great, thanks for the color.

You're welcome.

Louie Toma, Craig-Hallum Capital Group.

Nice quarter, guys; just had a couple of questions. Could you tell us what the average deal size is for IT Deal Alert this quarter and where you expect that to be trending over time?

It's in that same neighborhood of $25,000 to $30,000 because we're still early days. We expect -- we're doing very well with renewals and upsells and, as we stated in the letter, the ups, you know, the revenue renewal rate is in excess of 200%. So, over time as the customer base matures, we expect average deal size to increase on a regular basis because what we're -- the customers are adding additional segments.

Perfect, thank you. And in regards to the domestic online revenue, it look like it decelerated a little bit from last quarter. Could you give us a little bit of insight in what you're seeing from your customers in terms of spending, media spending, and maybe why it was down a little bit this quarter relative?

Yes, I mean I think that we've seen our North American region and branding revenues have stabilized. So, it was down a little bit in Q2 but I think that was more about a comparable issue, but over the past four quarters we've been in a fairly tight range for North American online. So we believe that we're -- that business is stabilized.

The comparison in Q3 is kind of in line with where we think it's going to -- where we'll -- in the neighborhood of where it will come in so that should be roughly flat in Q3. So we think that, like I said, I think that business has stabilized and any declines in it, the decline was pretty slight, any decline is behind us. And then the other thing about North America if you combine the North American traditional business with the IT Deal Alert business online has very healthy growth.

Right, right, right, absolutely. Can you give us a sense for the percentage of IT Deal Alert revenues that is based on annual subscriptions and where you expect this?

Yes, I mean at this point that's a small number. So the process that we go through with our customers is we have this in the neighborhood of a 90-day sales cycle. Then we -- customers will typically test one segment and then for the next order, they might do two or three segments. And then the next order it might be the number of segments that they might actually do and then they have to run that through. So it's at least a -- at least a year process where our customers are figuring out what their monthly appetite is for number of opportunities.

And once we -- once our customers have kind of figured that out, then they're -- it's an opportunity for us to convert it to an annual subscription. And so we have several annual subscription deals but most of our customers aren't far enough in that process to figure out exactly where they are.

Now, on the other hand, all the Account Watch deals that we're signing are annual subscription deals. So we believe that number, the annual subscription deals we expect to continue to grow each quarter as we go forward and we're looking forward to building up those annual bookings. And I think in 2015 and 2016 those annual subscription revenues will be significant.

Great. That's all I had. Thank you very much.

Marco Rodriguez, Stonegate Securities.

Thanks for taking my questions. Just a couple quick follow ups, in regard to IT Deal Alert and the launch in the International market, can you kind of give a little bit of color, I mean kind of maybe a compare and contrast of what you're seeing thus far from your International customers in terms of their reception and their thoughts around the product versus the US customers?

Yes, I mean one of the things that's different is the number of segments that we can do. So, obviously the US market is the largest, more qualified sales opportunities. We have about 60 segments. In Europe we have about 25 segments and in Asia-Pacific our initial launch will be even less than that.

So it's because the markets are smaller so what we're doing is we're combining some categories. So that's one thing that's different in terms of the size of the deals are a little bit smaller, as you'd expect.

But in terms of customer experience, it's very similar to the US. The customers are -- like them very much. The data is very accurate and they're giving them good information that their sales team is using to build their sales pipeline.

Got it and do you have any update on the annual guidance you provided in Q2?

Yes, with the -- that guidance still holds so we're looking for low to mid-teens revenue growth for the year, 80% plus EBITDA growth for the year. IT Deal Alert revenues will quadruple from 2013 and International revenues will grow at least 20% in 2014 versus 2013.

Great, thanks a lot, guys.

Kerry Rice, Needham & Company.

Sorry if some of these questions have been asked but did you give any sense of what the percentage of revenue from IT Deal Alert came from QSO versus Account Watch?

We didn't disclose that specifically but the vast majority of it is still qualified sales opportunities. We just announced Account Watch in March and we're seeing at least a 90-day sales cycle. So we have several deals that we sold and have installed but the majority of the revenue at this point is qualified sales opportunities.

Okay, and then the timing, you mentioned in the press release that the event that generally takes place in Q3's call follow into Q4. Should we kind of expect that similar event to happen in 2015 than in Q4 or stay in Q3 or how should we think about next year?

We haven't calendared the 2015 event schedule but we will do a better job of calendaring that our so that when you're modeling event for timing per quarter you'll know where the revenue falls.

And this was just really -- just this only changed by a week but it was just the first, end of September versus the beginning of October.

Okay, and then if I think about the growth in your International revenue was about -- I think about 23%. How do I think about, I know that you rolled out IT Deal Alert early in the quarter internationally from the UK? How much of a driver of IT Deal Alert was in that International growth number?

We had good growth with IT Deal Alert in the quarter internationally but we also had good growth, good solid double-digit growth, excluding IT Deal Alert. So, international in Europe and Asia-Pac continues to perform very well. We're benefitting from the tailwinds that exist there with the shift from offline to online being behind the US and just in its early days there.

We've -- you know, most of our sales team has been on the ground for a short period of time and every day we're making further penetration into our customer accounts there.

Okay, thank you very much.

James Lee, Potrero Capital.

Just to clarify, on your IT Deal, the $4.8 million, is that US only or do you include International in that?

So, it's $4.1 million in the quarter and that includes US and International.

Okay and respect to cash flow, you had a very strong cash flow quarter. What drove that and were there any one-time items in there and how sustainable is that kind of run rate?

Yes, so we're always looking at ways to improve our DSO and increase cash collection. There was a few one-time things just in terms of timing that happened that quarter to make it as high as it was. One thing was we had a few large bills that paid in the first week in April that we thought were going to pay at the end of March, but that -- I mean that rate's not sustainable because we collected more cash that we had revenue in the quarter.

So, there was definitely some timing things that happened that just made that Q2 especially good, but I would say that there's several things that we're doing that have been successful in terms of lowering our DSO and those improvements will continue to show up in the numbers.

And with respect to buy back, do you expect to be active in the market immediately after this or starting tomorrow or do you think you would have a sort of waiting for it to get even more attractive level?

That's -- we're in a closed period until the end of the week but that's -- we will be constantly evaluating that and figuring out what makes the most sense, but I think that at the current stock price we think it's very attractively priced, I'll say that.

All right thank you.

You're welcome.

Showing no further questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.