TechTarget Inc (TTGT) 2015 Q1 法說會逐字稿

Operator: Good afternoon, and welcome to the TechTarget Q1 2015 Earnings Release Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Ms. Jane Freedman, General Counsel. Please go ahead.

Thank you, Gary.

Before turning the call over to Greg, I want to remind everyone on the call of our earnings release process. As previously announced, in order to provide you with an update on the business in advance of the call, we have posted Greg's letter to shareholders on the Investor Relations section of our website and furnished it on an 8-K.

On the call today, Greg will briefly summarize our financial results for the quarter and some changes in our forecast for 2015 and then management will respond to questions. Following Greg's introductory remarks, the management team will be available to answer your questions.

On the call today, we have Kevin Beam, our President; Mike Cotoia, our COO; and Janice Kelliher, our CFO.

I need to remind you that during this call, any statements made by TechTarget that are not factual may be considered forward-looking statements. These forward-looking statements are based on assumptions and are not guarantees of our future performance. Our actual results may differ materially from expectations. Please refer to our risk factors and other factors in our annual and quarterly reports filed with the SEC. In addition, the forward-looking statements speak only as of the date of this call and the Company undertakes no obligation to update these statements.

Also, during this call, we may refer to financial measures not prepared in accordance with GAAP. A reconciliation of these measures to the most comparable GAAP measures accompanies our shareholder letter.

Now I will turn the call over to Greg.

Great. Thanks, Jane. Our largest customers got off to a slow start to the year. Since a significant portion of their revenues are international, they are being impacted by foreign currency issues. As a result, we lowered our forecast for international growth this year and that change is reflected in our revised 2015 guidance.

Despite these headwinds, we continue to enjoy strong momentum with IT Deal Alert as evidenced by the number of new customers we added in the quarter and the 49% year-over-year revenue growth. We're also pleased with the reception we've received in the market to Deal Data and Priority Engine, the two new products we launched in the first quarter.

In addition, today we announced TechTarget Research, the latest new offering to our suite of IT Deal Alert products. Our goal is to bring transparency to market share and pricing in the enterprise IT market. We believe this will be disruptive and creates a significant revenue opportunity for TechTarget.

Our board has authorized an additional $10 million to be used to repurchase shares under our buyback plan, reflecting confidence in our business, the large opportunity in front of us, the attractive evaluation of our stock, and our continued commitment to enhancing shareholder value.

I will now open the call to questions.

(Operator Instructions) Brian Fitzgerald, Jefferies.

Greg, on -- congratulations on launching the two new IT Deal Alert products. Wanted to ask a couple questions around those. 30 customers using the 2 new products, how are they split? Is that an even split between Deal Data and Priority Engine? Any nuance to the timing and to when those launched in the quarter, would be our first one, I guess?

Yes, so we announced the product in January. So we started bringing it out to customers in January. We delivered it a month or so after that. At this point, there's more Priority Engine customers than Deal Data, but that was kind of the plan. So there's no surprise with that.

Okay and then on the Priority Engine, two-thirds signed up for annual subscription. Was there a short trial period and they kind of saw the efficacy of the product and said, yes, you know upsell me to an annual subscription? Then is Deal Data priced on an annual subscription also?

So Priority Engine, those people that signed up for the annual subscription signed up annual subscription out of the gate. So, the way it works is, it's $90,000 per segment for an annual subscription or you can buy each segment quarterly at $30,000. So those customers decided to take advantage of the pricing incentive to do annual.

Deal Data, the pricing is custom and those deals can be priced at any duration, quarterly, two quarters, annually. But right now the customers that are using Deal Data are shorter term, you know mostly quarter to two quarter subscriptions as they're testing it.

Okay and then if I can one more, on the TechTarget Research, the post deal data, is it overall market transparency that you think it's going to drive the data submission? And I guess my question there is would an IT buyer push back for strategic reasons? Hey I don't want my competitors to know what I'm investing in and buying. Can anonymization alleviate this? And then one more follow-on on the post-deal data.

Yes, so on the post-deal data for the IT buyers, there's tremendous value. So if they participate and give us their data, we'll give them data back. And what we're giving them is primarily three things. We're giving them real-time market share data, which is very valuable because there's -- it's hard for buyers to separate the hype from the reality in the IT market. So this will show them which incumbents are being displaced, which companies are gaining market share. So that's very valuable.

The second thing is we're going to give them some information on what types of discounts their peers have been getting. So there's very little pricing transparency in the IT market. So that will help them negotiate better deals.

And then also very valuable, if you're about to make a large purchase, you know six figures, seven figures, or eight figures, you want to talk to other IT organizations that have made that same purchase. And the way people get references today is primarily from the vendors. And obviously they're handpicked, so they don't have as much value as references independent of the vendors. Since we know where such a large number of deals are, we can give references in scale independent of vendors. So that's the motivation why customers are sharing this data with us, why we're getting responses on 13,000 surveys per month because they know if they feed information to us, we will give information back to them.

Okay and then the timing around the, you know I guess there's kind of two pieces. One is giving the data back to the IT community so they have this greater transparency. You also mentioned too kind of selling the data to research and to investors. Is there two pieces of the timing there?

Yes, so we're sharing some information back with buyers already, but what we're looking to do is get it -- we're doing it in scale. We're full speed ahead on collecting this information right now. We're building systems to make it easy to disseminate that information and we expect in the second half of the year to be able to have that in shape where we can go to market with revenue offerings to IT vendors and investors.

Great, thanks. I'll jump back in the queue if I need to know.

Right. Thanks, Brian.

Kerry Rice, Needham.

Thanks, a lot. I apologize if I missed a previous comment on here. There's several calls going on today. Were you -- how do I think about the FX impact in the sense of, is this primarily just a core online versus IT Deal Alert? I mean meaning international or did IT Deal Alert also feel a little of that impact and is it fair I guess to look at the guidance and I think you said that the original forecast for international growth was around 20%, now 10%, so it's truly a 10-point kind of swing in the full-year guidance it looks like. And it was only about 1.4% is that correct on the quarter? That's the first question.

Then the second is, are you giving any -- are you disclosing any split between IT Deal Alert on the QSO versus Priority Engine? And then the final question on IT Deal Alert is can you maybe talk a little bit more specifics about maybe customers and their buying behavior, whether it's -- they're buying -- you're seeing a lot more segments being added or you're seeing a lot more products being ordered, meaning maybe they order QSO and Priority Engine now? Are you seeing multiple products ordered at the same time?

Sure. So on the foreign currency issues, basically what's happened is our largest customers that have a, you know a big portion of their revenues internationally, are seeing less revenue. So you could see that in all the big IT companies' first quarter results, the ones that have announced so far. It's kind of the major theme.

So, you know typically what happens when our customers are under revenue pressure, they cut budgets. They delay programs. You know and we saw it in the Q1 and Q1 is always the slowest quarter of the year anyway. So it was really exacerbated in the quarter. So when we look at what we did internationally Q1 and kind of play out what we're seeing from our customers, that's why we revised the guidance to 10% growth internationally.

In terms of the split on IT Deal Alert, yes the, you know 90% plus of the revenue is still Qualified Sales Opportunities cause we just started selling Deal Data and Priority Engine in the quarter. And since several of those deals are annual subscription, you know we recognize that revenue pro rata over the life of the contract. So a lot of that revenue will be recognized in later quarters. But that ratio will grow a larger -- each quarter a larger percentage will be Deal Data and Priority Engine as they're new products. But we're still, you know we still think we'll be growing Qualified Sales Opportunities.

Then in terms of segment, it's -- you know there's a lot going on in the growth. We're still adding new customers. We're upselling customers. We're cross-selling Qualified Sales Opportunity customers. We're cross-selling them Priority Engine and Deal Data. So there's a mix of different things that are happening, all good, that's driving in this quarter 49% growth. Obviously we're guiding to you know 50% growth for the year.

Greg, you at previous quarters have highlighted revenue renewal being around 200%. Can you update us on that?

Yes, renewal statistics are -- have been -- are consistent with what we've seen in the past. So, yes, there's no changes there.

Okay, thank you.

Kyle Evans, Stephens Inc.

Thanks for taking my question. Maybe we could start off with the pricing scheme around the new TechTarget Research. How much thought have you gone into there and give us some kind of a forecast?

So we're in the stage, Kyle, where we're talking to a lot of customers, potential customers and prospects about what the offering will be, what the -- you know what type of pricing makes sense. So we're still figuring that out. But, you know it's -- what I will say is the data that we possess is very unique and very valuable. So, like all of our other products I think really will follow with a premium pricing strategy.

Okay. On the top 12 customers that were particularly weak in the core online business, is that fairly evenly distributed across those 12? Do you have a couple that are particularly large, 8%, 9%? What does that group look like?

Yes, so in terms of the percentage of revenue, there's a bunch of customers that are fairly even. You know we don't have any 10% customers. Most of those customers are definitely impacted significantly by the currencies and we definitely saw it affected in the level of business that we saw from them in the first quarter.

Could you give a kind of a price range on the Deal Data sales that you've got thus far, just brackets?

Yes, I mean it's similarly priced to Priority Engine, right. So it's this -- Priority Engine is $90,000 per segment annually and $30,000 per segment quarterly. So that -- the data is basically the same, it's really how the customer would like to get it delivered. You know do they want it integrated with Salesforce.com or do they not want it integrated with Salesforce.com? But the data set is similar. So, a lot of those deals are priced custom where it could be multiple segments or multiple geographies. So it's a little bit different. But as a guideline, you know it's -- we use the Priority Engine pricing as kind of the guideline to do the customization.

Last one and then I'll get back in queue. You talked a little bit about the renewal rates on the QSOs. How's the pricing integrity there and the upsell there?

Pricing integrity is very strong. So, we don't discount them -- we don't discount IT Deal Alert. You know Salesforce doesn't really have the flexibility to discount. So pricing is -- pricing discipline is very good. Then upsell is obviously, we're always looking to sell more segments of Qualified Sales Opportunities and you know a lot of the people, those 30 customers that bought Priority Engine and Deal Data, most of those customers are Qualified Sales Opportunity customers as well.

Okay, thank you.

Eric Martinuzzi, Lake Street Capital Market.

Yes, I'm curious about the linearity on the quarter. I know we came out of Q4 on February 11th and gave the outlook for the quarter and year and just wondering, you know Q4 we had that 31% nice international revenue growth comp and here we're at 7%. When did you see this impacting your business?

Yes, so the thing about Q1, Q1 is -- are always our latest starting quarter because you know you have people -- our customers have a big push at the end of the year and then they have the Christmas holiday and then most of our customers have sales kickoff meetings, which takes a lot of their marketing teams out of pocket for most of January. So it's probably our most back ended quarter of the year anyway. Then, you know when we got into the middle of February and beginning of March where we would expect to see a lot of deals coming in, we saw a lot of delays from the big customers as they were trying to figure out their budgets and what they're going to do in light of the declining revenue they were seeing from the currency issues.

Okay so kind of middle of March you knew that things were going to be off track?

Yes, I mean it was -- the way it works is, customer start dates of programs for us is a huge factor. So if customers are pushing out, you know giving us orders and pushing out start date that affects the revenue in Q1.

Okay, then the IT Deal Alert kind of the QSO, if we had -- if there was kind of a same-store sales number, I'm trying to get a feel for seasonality in QSO. Did you see kind of a same-store sales seasonality between Q4 and Q1?

Well our seasonality -- so the normal seasonality of the business is Q1 is the smallest quarter of the year, Q4 is the largest quarter of the year. I think IT Deal Alert is a new enough product and growing so fast that seasonality hasn't had too much of an effect on it. Although we're definitely seeing effect on international IT Deal Alert by what's going on with customers' budgets internationally. That's definitely going to affect international IT Deal Alert revenues this year.

Okay, I guess maybe I didn't ask the question carefully enough. But it was good to see that up sequentially and I was wondering is that just because of the incremental new customers you added or was that increased spend by the existing guys?

It's a combination.

Okay.

You know we brought in a lot of new customers so obviously that helped as well.

All right and then the TechTarget Research product, when I look out to how IT Deal Alert ramped, you know a year ago was kind of a stub period when you launched it in 2013 at $4 million. It went to $17 million in 2014. Is there a way to size up how we can think about the incrementality of TechTarget Research, that product offering?

You know that's hard to do cause we haven't -- we're working on introducing the product so it's hard to say. The other thing is we're going to be selling this to two new customer sets that are new to us, so we haven't sold -- obviously we sell a lot to the IT organizations, the IT vendors but we haven't sold to their research arms and we haven't sold to investors before. So I think it would be premature for us to take a stab at that. But what I will say is that I think over the medium term and long term, based on the feedback we're getting from talking to both those audiences, that we feel that we can drive pretty significant revenues to both those sets of customers.

Thank you.

You're welcome.

Mike Malouf, Craig-Hallum Capital Group.

Hey, everyone. Quick question on the international side. Most of my questions have been answered, but I can understand why the North American Core Online business certainly slowed down, given the currency headwinds. But can you sort of compare/contrast the international side? Cause I guess you could say that some of these international guys could be helped by the foreign exchange. So just a little bit of clarity on how it affects those guys. Thanks.

Yes, well basically they're part of these larger organizations and marketing budgets are set based on the overall health of the business each quarter. So, what we basically saw was those types of pullbacks. There's also I think it'll be interesting to see what the IT spend numbers were for the quarter internationally. But I think a lot of the customers on the IT side were also moving slower, which affected how the vendors operated as well.

Okay and then with regards to the TechTarget Research side, are you -- did I hear it right that you're going to launch the investors and the IT buyer parts of that at the same time in the second half?

So the IT buyer piece, so just to be clear, so the IT -- the data that we give to IT buyers, if buyers give us data, we'll give them data back at no cost. They'll be part of this community of peers sharing data with each other and we're kind of the clearinghouse for them. In the second half of the year, we will start selling this data both to IT vendors, you know to the market research teams and their executives as well as to investors.

Marco Rodriguez, Stonegate Capital Partners.

Good afternoon, guys. Thanks for taking my questions. Just want I guess a little bit of clarification here on the guidance and the FX issues. So if I'm understanding you guys correctly, the impact on guidance, the reduction in guidance that is and your results this quarter, it has more to do with what your clients are doing with their budgets more so than you translating revenues back into dollars, is that correct?

Exactly. So in the quarter, our revenue was adversely affected by 1.4%. But the major thing that's going on is it's significantly affecting our largest customers' behavior. I think that is an important point. So if you look at the segmentation of our customers, our 12 largest customers' revenue was down 12% year over year. But then if you look at our next 100 customers, so say customer number 13 to 112, their -- and they have, those customers have less exposure outside the US, their revenue was up 20%.

Then if you look at our next customers, from 113 plus, who tend to be smaller VC-backed startups and primarily operate in North America, their revenue up -- their revenue was up 26% in the quarter. So what's really happening is our very largest customers, you know the companies with billions of dollars of revenue and very large marketing budgets, that's where we saw the pullback.

Got it. Can you provide us some -- like an update or some additional color into this Q2? I mean what are you seeing and what are you hearing from these large clients? Are their budgets still looking kind of stretched? Is anything improving? Any kind of color there?

Well, I mean you can see from the guidance that there's sequential growth Q2 to Q1, so I think that speaks to -- you know that we're expecting improvement. You know in general Q1 is always the toughest quarter because of the -- just kind of the timing things that I talked about earlier and we usually see, you know normal seasonality would be a sequential increase in Q2 versus Q1. So, as you can tell from the guidance, we're expecting that to occur.

Okay. Then coming back to the Priority Engine clients. You mentioned I guess in your prepared remarks that about two-thirds of the clients had signed up for annual subscriptions. And my understanding, obviously, as you said before also is that when they sign up, they sign up right away for annual deals. So just kind of wondering the other third, what sort of -- I guess what kind of impact did that or what sort of feedback did you get from them for them not signing up for an annual subscription there?

Yes, I mean some customers just can't, from you know internal budgets, can't sign up annually. So they just -- they buy quarterly. So they'd rather -- you know they don't have the option of doing annual. Other customers wanted to try it for a quarter before doing annual. So just, you know, just kind of normal reasons.

Got it. Then last question on this new product, the TechTarget Research, are you going to have a dedicated sales team for that?

We are because it's selling to two new constituencies. So we'll be -- we're looking to hire people that have experience selling research to IT vendors and people with experience selling research to investors. So, we will have a dedicated sales team.

Can you quantify how many people or dollar-wise what the investment's about?

You know we're going to hire to meet the demand. In terms of the investment though, that is baked into our guidance. So basically how we look at it is with addition -- with incremental revenue, what we typically do is we take half of that incremental revenue and drop it to the bottom line and the other half of that incremental revenue, we reinvest in the business. It's out of those dollars where we'll be paying for these additional -- to invest in this new research business.

Got it.

Brian Fitzgerald, Jefferies.

Thanks. Just wondering if, when you saw that -- and Greg I know, I appreciate how you highlighted the segments and where you saw the weaknesses. Was there any particular weakness around segments? One particular segment weaker than others or any weakness around who the end IT buyer is? Consumer guys are weak but other end users are not.

Well in general, the strength of the market is around the same areas that you would expect, you know cloud and security and business intelligence. Those large -- those 12 largest customers obviously those are important markets to them. But I, you know I don't really think it's - there's any specific weakness in an IT segment that's causing them to pull back on marketing. I just think you know what they do is when they're challenged on revenue, they're looking to manage their earnings and they get pretty aggressive with cost cutting and pushing out expenditures. One of the easiest places to do that is marketing because they're -- you know it's short term, discretionary spend. So it's something where they can kind of manage expenses pretty quickly. So we've seen this behavior many times before. It's not new. You know and I think it's pretty interesting that it's not -- what we're seeing wasn't broad based. It wasn't across all customer sets. It's really only across the customers that have a significant amount of their revenue coming internationally.

Great. Thanks.

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