TechTarget Inc (TTGT) 2015 Q4 法說會逐字稿

Good day. And welcome to the Tech Target fourth-quarter 2014 earnings release and full-year financial results conference call.

(Operator Instructions)

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, Laura.

Before turning the call over to Greg, I want to remind everyone of our earnings release process. As previous 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 results for the fourth quarter and full year. Following Greg's introductory remarks, the Management Team will be available to answer your questions. On the call in addition to Greg, we have Kevin Beam, our President; Mike Cotoia, our Chief Operating Officer; and Janice Kelliher our Chief Financial Officer.

During this call, any statements made by Tech Target that are not factual may be considered forward-looking. These forward-looking statements are based on assumptions, and are not guarantees of 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 the status. Also during the call, we may refer to financial measures not prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures accompanies our shareholder letter.

With that, I'll turn the call over to Greg.

Thanks, Jane.

Tech Target executed very well in 2015. We faced a challenging macro environment all year. As our largest customers' business plans were unexpectedly disrupted by the strong dollar. We are in the early innings of a major trend as our customers want to take advantage of big data to grow their market share. This trend is gaining momentum. We are well positioned to take advantage of this trend with our proprietary IT purchase intent data.

We introduced three major products under the IT Deal Alert Umbrella in 2015: Deal Data, Priority Engine and Tech Target research. All three are off to a good start and will contribute to revenue growth in 2016. Our organic traffic from search was up 40% in 2015, as our investment and independent, high-quality content continues to pay off. Financially, in an environment where marketing budgets were flat at best, we grew revenue and profits.

2015 was our 12th consecutive year of being cash flow positive. We repurchased approximately $15 million worth of stock in 2015. And our Board is authorized an additional $20 million to be used for stock repurchases, reflecting our confidence in the business.

I will now open the call to questions.

(Operator Instructions)

Brian Fitzgerald - Jefferies

This is John on for Fitz. Quick question for you. You announced the launch of the research product then you noted you signed the first few contracts already last quarter. Could you talk a little bit about the types of customers that you are signing for that product and how they are engaging with it?

We have been signing up vendors. It's typically their market research or competitive intelligence teams. And they are very interested in seeing what customers future buying plans are, as well. What is happening in the specific markets in terms of who's winning deals who's losing deals, Street pricing, et cetera. That's the first place that we are going to.

On the investor side, what we're learning there is investors want to have some historical data so they can see some trends. We anticipated that. So that will be a later developing revenue stream.

You noted that the largest 12 clients had struggled in Q4. Have you seen any turnaround at the beginning of the year so far? Or have you heard anything qualitatively that has given you some optimism for the rest of 2016?

It's still early in the year. Seasonally, as you know, Q1 is always slow. It's of the smallest quarter of the year. I think on a positive side, for 2016, no one will be caught off-guard with the strong dollar. Last year it was unexpected. This year people know about it.

Also our largest customers will be calendaring the effects of the strong dollar. My expectation is that those two factors will be favorable. In terms of what we're thinking for the year, I think that is reflected in our annual guidance.

Thank you.

Kerry Rice - Needham

Thanks a lot.

To dove tail with last question, you did provide the details with top spenders and the balance of the customers. Within those top spenders, is there anything you would call out? Anybody that's is still actually positively spending versus the contraction? And/or is some of that's contraction largely driven by the Dell EMC merger and a falloff in spending there? That is the first question.

And then you highlighted, for IT Deal Alert, we expect about 40% growth in 2016 with upside to 50%. Could you talk a little bit about what would be the drive up to 50% growth? Is a prior engine out-performance or anything there? Then I will have one follow-up question. Thanks.

In terms of the top 12, and I don't want to get into specific customers. Those companies, many of those customers have more than 50% of their revenue outside the US. They were severely affected by the strong dollar. That's across the board.

It's no secret that some of those top customers are in the middle of mergers, and spinoffs, and divestitures. Which can create additional uncertainties. It's clear what's going on with the top customers. They're all public and everyone can follow what's happening there.

In terms of IT Deal Alert, the fastest places growing, we're seeing very good acceleration with Priority Engine. As you can see, we doubled the number of new customers that we brought in this quarter versus last quarter. We're starting to sign some annual contracts, which is a nice development. There's some very good upside there.

Tech Target research there is definitely upside there. Because it's new that we're forecasting somewhat conservatively. Because you don't have past track record to go on. We have hired our first few salespeople there.

We started to sign some deals. The pipeline is building nicely. The customers that have seen the data have really liked it. It's very unique. So that's another area where there will be significant upside.

It's still very early innings. And we have new products that we'll be announcing this year as well. All those things combined provide the potential for upside.

Great, just one follow-up. On the strong organic search. Is there anything you have changed or tweaked that's led to that all-time high? Or anything you would call out there?

I think there's a few things. We continue to invest in very specific targeted content. We have seen a retrenchment from our competitors. They are producing less quantity of relevant content, so that helps us.

In general, I would say that we -- the Google -- the way the algorithm is changing, it's very focused on the quality of the content, which really plays to our strengths. We have done some things there. With our editorial teams to reinforce what we've always been doing.

There was another algorithm refresh on January 8 by Google. We've been performing very well with double digit traffic growth since that refresh. Since that algorithm change in January. All things are very positive on that front.

Thank you.

Kyle Evans - Stephens Inc

Hi thanks for taking my questions. A few more on the research product? Greg, I believe you said in the past that will be in Deal Alert. I first want to confirm that?

That's correct.

Going forward, I'm hoping you'll say yes. Are you going to be breaking out research and progress there in any more detail in your commentaries on the calls going forward?

Yes. I don't expect we will break it out from a line item and report on revenue and let the whole world know what we're doing. But yes we will continue to provide color so you get a feel for what's happening there. And I think it will be very positive. We will definitely be giving some color on that.

Can you detail some of your thinking around the -- you gave basically a $10 million run rates by the end of next year. You have your first deals in hand. The simple math is, you need 100 of them, at $100,000 to get to that goal. What were some of the things that you were thinking about when you put that fourth quarter of next year out there as a timeline?

We look at the number of customers that we think are good candidates to buy it. We look at the number of salespeople that we have hired and have plans to hire and what a revenue ramp would be for those salespeople.

We have made some assumptions on renewal rates and upsells and cross sells. The basic things you do as you do a revenue buildup. As you know, this is a very large opportunity. Our customers spend huge amounts of money and have dedicated budgets for this. There is obviously Gartner and IDC and Forrester and a lot of companies generating hundreds of millions of dollars in this space. It's a very big opportunity for us.

How much historical data do you need before you can pursue the investment community? I think about all the overpriced data products that we buy and my peers buy and my clients buy. And if you in fact have a real-time pricing, and market share, and street pricing, to me a hundred thousand dollars seems very reasonable.

I think that early adopters, two or three quarters of trend data. Everyone we are showing in the investment community we show them, of course with the data. They say is extremely interesting. It's very unique. We've never seen anything like this. We can see how it would be very valuable. But just looking at one quarter without being able to discern a trend, it's hard for me to take action on it.

So, every quarter we generate more data there will be more people interested. Obviously, year-over-year data is going to be extremely attractive. I think we will definitely have early adopters looking for quarter-over-quarter. And more people as we get to year-over-year, that product will gain traction.

One last question, then I'll get back in the queue. Could you talk specifically about IT Deal Alert in that top 12? And also internationally. International is the one place where it looked like we came up a little short and we're going backwards. Interested in your thoughts in both of those areas.

International, as you would imagine is the most directly affected. Those budgets are most directly affected by the strong dollar. The other part that you can imagine, international has a higher percentage or revenue from big customers because they do so much business over there. That is the story on the international IT Deal Alert.

In terms of the top 12, we definitely saw weakness across the board from the top 12 across all products. When they are cutting budgets, we have pretty good penetration there, they are cutting across the board.

When you look at your IT Deal Alert customer base, is the top 12 fairly well-represented there? In general our business is about 40% from the top 12, about 40% from mid sized companies and 20% from DC-backed startups. I would say that breakout is generally reflective in our IT Deal Alert products, as well. Okay great thank you.

The next question comes from Mike Malouf.

I'm curious, Greg if you can comment? We had previously asked and had discussion about the concern that perhaps North American core online revenue could be cannibalized by a real successful IT Deal Alert. It looks like IT Deal Alert continues to do well. Even on the international side, you're looking at 10% growth.

The real swing factor is the North American core online. Has there been some unanticipated cannibalization that's going on in that?

No. I think the numbers prove that out. Since we have announced IT Deal Alert, and $0 million to $23 million of revenue in 2.5 years, our North American core revenue has been roughly flat. That IT Deal Alert revenue has been incremental growth.

I would say that the IT Deal Alert actually reinforces the value proposition of the core, because the great thing about IT Deal Alert is it identifies deals that are in progress. Some may be in the middle of the process, and what our customers are always asking us is how can we influence these deals early?

The answer there is you have to be influencing these people early in the research process with branding, with micro-sites, with white papers, with webcasts. I think the numbers speak for themselves. It hasn't been cannibalistic. I think it's actually reinforces the value proposition.

Switching gears, on the investor side of the new products. You said that they really need some history on that's before they step up. Are you planning to basically populate the data set with historical data and then give it to the investors? Or are you just going to have to wait for some time to go by to populate with future data and then give it to them?

The specific date that we're collecting today is much more in-depth than the day that we were collecting in the past. Because we didn't have the idea to product size it. That data that we are collecting, we will have to be patient and each quarter we will have new data. The first time we published was Q4 of this year, and we don't have data from before then to publish.

How long do you think it will take to get some traction in there then?

In the storage space, for example, in Q1. We will have our second quarter and in Q2 will have our third quarter. As we continue to get quarter-over-quarter, we will start to get some early adopters. We've got quite a few investors that are very interested in the data. We're having a lot of conversations and the feedback has been good.

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