TechTarget Inc (TTGT) 2023 Q4 法說會逐字稿

Good afternoon, thank you for attending the TechTarget report fourth quarter and full year 2023 financial results conference call.

My name is Matt, and I'll be your moderator for today's call.

(Operator Instructions) I will now pass the conference over to our host, Charles Rennick with TechTarget.

Charles, please go ahead.

Thank you, Matt, and good afternoon, everyone.

Speakers joining us here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our Chief Executive Officer; and Daniel Noreck, our Chief Financial Officer.

Before turning the call over to Greg, we would like to remind everyone on the call of our earnings release process.

As previously announced in order to provide you with an update on our business in advance of the call, we posted our shareholder letter on the Investor Relations section of our web and furnished on an 8-K.

You can also find these materials with the SEC free of charge at the SEC's website at www.sec.gov. The corresponding webcast as well as a replay of this conference call will be made available on the Investor Relations section of our website.

Following Greg's introductory remarks, the management team will be available to answer questions, any statements made today by TechTarget that are not factual, including during the Q&A, may be considered forward-looking statements.

These forward-looking statements, which are subject to risks and uncertainties are based on assumptions and are not guarantees of our future performance.

Actual results may differ materially from our forecast and from these forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section of our most recent periodic reports on Forms 10-Q and 10-K.

These statements speak only as of the date of this call and TechTarget undertakes no obligation to revise or update forward-looking statements in order to reflect events that may arise after this conference call, except as required by law.

Finally, we may also refer to certain financial measures not prepared in accordance with GAAP.

The reconciliation of certain of these non-GAAP financial measures to the most comparable GAAP measures to the extent available without unreasonable effort accompanies our shareholder letter.

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

Great.

Thank you, Charlie.

Well the big news since our last earnings call with the announcement we made on January 10, we entered into a definitive agreement with Informa to combine TechTarget within Informa's tech digital business.

The combined company will have increased scale with over 8,000 customers in over 20 countries, first-party purchase intent data from over 220 leading digital brands and a permissioned audience of over 50 million people.

The combination increases our TAM by over 10 times as we enter 18 new vertical markets within a unique end-to-end solution across the go to market.

The combination creates a company with a strong financial profile.

We expect 2024 pro forma revenues to be over $500 million within five years.

We expect revenue to grow to over $1 billion in revenue and at least 35% EBITDA margins.

We structured the deal so our shareholders will get some immediate benefit by receiving an $11.79 per share in cash and long-term benefit for providing the opportunity for shareholders to participate in the value creation through a 43% stake going forward.

In regard to the current environment, we came in slightly ahead of the high end of our Q4 guidance.

This reflects a macro technology environment, which customers remain cautious regarding their sales and marketing investment levels.

We expect this dynamic to continue throughout 2024 because of uncertainty surrounding inflation, interest rates, the presidential election, and geopolitical issues internationally.

I will now open the call to question.

(Operator Instructions) Jason Kreyer, Craig-Hallum.

This is [Cal Bartyzal] for Jason, First one for me.

I was just wondering if you could just talk a little bit on the AI capabilities across TechTarget and Informa, if there's any kind of differences and approaches between the two companies and how complementary those capabilities can come together?

Call, this is Mike.

I'm going to focus on the AI capabilities with TechTarget right now, because we've been working with generative AI capabilities and roadmap in the last year plus.

So I really want to focus on that.

And I see there's really four areas that we are -- where we see the benefits of generative AI, creating measurable impact on the business.

On the first, I'd say it would be on our product side.

In Q4, we launched our Intent Mail AI, which is under our personal assist product suite.

And what that does is hyper-personalized came auto generate e-mail for sales reps to leverage for the outreach, sales reps work -- who work for our customers.

So we're doing that leverages AI to blend TechTarget, prospect level, purchase intent, insights, and behavior, along with what we call recent product line, customer information to personalize our reps outreach.

And what this does it increases response time reduces the time to create the e-mails.

And as part of our product suite, we also have different entry points or points of interest at the individual prospect level.

So a rep can build a cadence that has multiple entry points to engage with a prospect that they are, he or she is targeting.

We're seeing good adoption in terms of reps, leveraging that reducing their time to create e-mails and leveraging first-party prospect level intelligence.

We also see an internally leveraging across our internal functions within TechTarget.

We have a content marketing department who's going to help promote customers' content to our audience and to their prospects.

And everything that we do is 100% index, by topic, by content, we rate the performance, the promotions.

So what we've done that is we've built a model that now our instead of hiring more junior copywriters we're taking on more experience copywriters to help train the models to help to the promotion and subject lines, for the white paper and webinar assets that we want to promote to our customers.

So we've taken out we've seen success on that, and we're now evaluating and rolling out Gen AI for internal control, for internal procedures and processes across four or five other different functional areas.

I mean, in terms of number and audience and creating a better user experience for our members who come to our sites, we built the private LLM driven out of our own content and first-party data, which is all behind the firewalls, to provide what I would call a micro experience -- which will be driven by comp intelligence.

So when a user or a member comes to our sites, we can then prompt them to find out what other information -- that would be relevant for them for their research and then guide them to our knowledge base of content, whether it's editorial content, vendor content, analyst written content, webinars content to make sure the better user experience.

And as we create a better user experience for our members.

We also gain relevant first-party purchase intent signals.

And then I would say, whenever you have a disruptive or evolution in the market that benefits TechTarget quite well.

We see that -- we're celebrating our 25th anniversary.

We came into the business.

We have stores is big virtualization, became a big mover cloud, now AI.

And if you take a look at the content that we produce and we have a 1,000 number one rankings around the topic of generative AI and vendor and customers need to cut through the noise because there's a lot of noise on how to leverage it, what are the regulatory concerns, how does it work in enterprise tech, that have always been a beneficial and a driver for our TechTarget business.

So those are the four areas I would say that we implemented and continue to implement and evolve around the business.

Perfect thanks.

And then just last one for me.

It looks like the guide implies something like a double digit decline in Q1, but flat or better for the year, is there anything that you would call out that's kind of signaling that you could see spend free up a little bit in the second half?

Yeah.

So I'd say in Q1 is always historically the lowest and you align us in the technology market Q1 is always the smallest revenue quarter for the year and that aligns with technology market.

When you say Q4 to Q1 over the history of our business, typically between 10% and 13% decline from Q4 to Q1, and we're predicting between 9% and 10% I think it's still as we mentioned in the shareholder letter, there are not a lot of -- with big catalysts in the market right now.

We've seen a high interest rates, the inflation.

We have a geopolitical situations going on and we have an upcoming election.

But I would also say is that our customers spend a lot of money in R&D and there's always going to be a pent-up demand when that shift goes from costs cutting to growth because there will be a pent-up demand for technology as well as for marketing and sales, typically a flight back to quality.

And we've seen this through several downturns over the course of 25 years.

And we're seeing some -- again, very consistent with our November call like pretty stable and no surprises right now.

So as we've seen that stabilize versus last year, going into Q1, we saw a big dip, give us some signs that the market stabilize a little bit.

And when the pent-up demand is there, there will be a flight back to quality, and we're putting ourselves in the best position to take advantage of that flight back to quality and focus on the recovery.

Perfect thank you so much.

(Operator Instructions) Kunal Madhukar, UBS.

Hi thank you for taking my questions.

A couple if I could.

One is on the permission audience.

So what percentage of your traffic in any given month is permissioned audience?

And how much of the permission audience have you kind of maybe potentially lost because of all the layoffs that's one.

Second is with regard to the guide, wanted to understand -- seasonality and what's going into your guide in terms of the 1Q that you do and explicitly and the 4Q, what are the Q-on-Q trends in revenue that you're kind of anticipating?

Thank you.

Okay.

Let me talk on the permission-based audience side, I would reflect that to our organic traffic.

And so we saw an increase of 14% year-over-year of organic traffic

[mile].

And that's actually coming off a -- that's actually coming off a high watermark for '22 -- Q4 and '22, where we saw 51% growth the previous year.

So in terms of audience and permission-based audience whenever we run program for our customers in terms of led gen or delivering them prospect level intelligence, 100% of our audience is permission-based.

In terms of the layoffs, where we're seeing layoff at the vendor side, not necessarily at the buying team side.

So the announcement that you see continuously throughout 2023 and even into Q1 of 2024, our tech vendors with a lot of layoffs around sales and marketing because of their numbers and their demand that they have, and that doesn't really impact what we see in terms of the traffic that a permission-based audience.

On your second question in terms of seasonality, I'm going to go back to historically, what we see and you go back into our financials for the last, 16 years, 17 years of being public, is that Q1 is typically the smallest revenue quarter.

Vendor, are not done finalizing their budgets.

A lot of the vendors are year-end, or December year end.

So budgets might not be finalized until February -- or March.

So in terms of their world, that's typically the lowest revenue quarter.

In Q2 it ramps, you see a lot of product releases and updates being presented by customers, you'll see them have more trade shows in April and May, Q3 levels off with Q2.

Typically you have some of the summer months, especially in Europe, with people taking vacation in Q4, which is typically your largest revenue quarter, both for us TechTarget, but that directly aligns the enterprise tech market as well.

So we're starting to see some signs where that coming back slowly in terms of those patterns, and that's what we're focused on in terms of our investments and the opportunity to get back to.

Thank you.

(Operator Instructions) Justin Patterson, KeyBanc.

Great.

Thank you and good afternoon.

Two, if I can.

First, just going back to guidance.

When you think about just kind of the bit of recovery over the course of the year is that driven primarily by customer growth within there, or are you making some assumptions in terms of pricing impacts around Priority Engine and the rest?

So that's question number one.

And then question number two, just philosophically, the product portfolio you have today is very different than what you've had in the past coming out of downturns, whether it's ESG or even just the BrightTALK asset.

So if you kind of look at the TechTarget that exists today, how do you think a recovery might an enterprise recovery might differ today versus what you've seen in the past?

Thanks.

Great.

So I'm going to start with your second question first because you bring up a good point.

The product portfolio today is much different than it was three years ago, five years ago, even two years ago.

That's been part of our strategic road map it's very important.

And what we've been very conscious about is making sure whether it's through our organic capabilities and launches on our product side or through acquisitions.

We want to be the premier provider to help our customers with their end-to-end go-to-market strategy.

So when the recovery comes back, they're going to have customers that are going to increase their demand all around content marketing.

They need really relevant content to talk about the technical or the economic validation and positioning within the market to engage with the right buyers.

So now getting into that end-to-end go-to-market strategy earlier, with not only the ESG capabilities but the BrightTALK capabilities to a multimedia format, making sure we can do this through webinars.

We can do this through PDF, we can do this through infographic to make sure that we're helping our customers earlier in their go-to-market stage.

Then being able to take that content and put those into those effective programs that will be delivered and put in front of prospect level -- prospect and buying teams that we know who they are, we know that they're permission based.

We know everything that they're looking at inventory and able to capture all that intent to deliver both the sales and marketing organizations to help them prioritize not only accounts, but the individual prospects within those accounts.

So combining that together and into being able to plug into the health care vertical with Xtelligent, and create additional peripheral content.

That's been really important for us and that's a big focus.

So when you have an opportunity to play in the whole end-to-end go-to-market strategy for a vendor, put yourself in a really good position.

In terms of the first question, how we see, the modest growth.

I think it's a combination.

So like we reported the number of customer count was down and that reflected in terms pretty close to the decline in revenue for this year.

We started seeing the overall revenue per customer leveled up was actually up a little bit, but I think it's a combination between, yes, there will be some customers that come back to net new.

I think there's some pricing capabilities that we have on our technology.

I also think some of the new products that we'll be launching as part of our roadmap with Priority Engine, some extensions of what we're doing and having some of these regions that may have been consolidated into a global spend from North America.

If the market starts picking up public later in the second half, that there's more budget being allocated filed marketing.

We mentioned in the last two earnings calls.

Whenever we see a pullback, market just gets centralized.

We tend to take them out of the regions they want to centralize have typically in the US then they allocate some dollars on that.

Well, the reasons you have numbers, hit too, they have sale, they have field marketers down there.

So between yes, customer -- increasing customer count, some pricing and new product solutions.

That's the approach that we see for 2024 and more importantly to 2025 and beyond.

Great.

Thank you very much.

(Operator Instructions) Josh Reilly, Needham.

Hi this Rob Morelli on for Josh.

Thanks for taking the question, regarding the acquisition Informa, 2025 pro forma model assume about [$500 million] in EBITDA grew year-over-year in the combined, assuming linear progression (inaudible) margin.

Should we expect the margin progression is linear next few years?

And can you just touch on some of the key items that will drive the (inaudible) margin improvement?

Okay.

So were a little broken up on that.

You're talking about the margin expansion over the years.

And what we say is we TechTarget had a really good history of making sure that we manage our margins.

And when you have a $500 million, if you look at the numbers and it's a pro forma $500 million going into 2025.

And the ability to take on revenue growth, which we I've shown improvement in over the history of our time to have a greater than 50% incremental EBITDA margin.

It's lot of that revenue ends up all of the bottom line.

So we'll be able to expand the margins on that side from getting into the real key on is a lot of growth through cross-selling and upselling our platforms and to new customers.

Also, if you take a look at the two businesses when they combine, we have over 8,000 customers that we have an opportunity to both cross-sell and upsell the solutions that we have, respectively, to get a deeper footprint into existing customers.

In terms of the Omdia Business, which I can't really comment on them.

That's a new product line, but it really does align with our strategy that we're talking about fitting into our customers earlier to help them with their end-to-end go-to-market strategy.

So through our revenue growth, driving 50% plus incremental EBITDA margins, if you do the math over the five years, you get to your 35% EBITDA margin that will be in year one that takes over -- several years to the growth and the opportunities that we have.

Got it.

That's helpful.

And then regarding some of the products coming from Informa industry drives, bring some nice diversification from an industry perspective.

While Omdia is solely focused on the tech industry.

Does it make sense to bring some of the industry drives, 20 verticals into the business model of Omdia, given it's a pure subscription and expand their business coverage beyond tech verticals?

Yes, I can comment on the Informa business and each of the divisions on it.

What I can comment on is what our strategy has been and has been publicly announced about getting into adjacent markets, making sure we have our content enablement services, making sure we have an end-to-end solution and having a platform to reach across all the opportunities, including adjacent markets.

So that being said, that's been a vision that we've stated pretty clearly around permission-based audience first-party insights in a comprehensive end-to-end go-to-market strategy, until we have the combination, we'll be able to go when that's finalized side, we'll be able to dive into that a little bit more with the public.

Got it.

Thanks for the color

(Operator Instructions) Andrew Marok, Raymond.

Great.

Thanks for taking my question.

Wanted to dig in on the customer count a little bit.

So that decline seems like it accelerated in 4Q was down 100 and 3Q down about 300 in 4Q.

What do you think is the floor here.

And I guess to the extent that, how much of the decline over the course of '23 is kind of involuntary lead companies going out of business versus voluntary cutbacks?

So I would say decline if you looked at the overall decline throughout the year, you had a lot of customers that may have signed annual deals in 2022.

And it was the second half of 2022 revenue, Q3, where we started seeing some declines.

So you didn't have lot of folks, lot of organizations sign up for annual deals going into Q4 of 2022.

That's when the market started to send signals that it was slowing down.

So that's why one of the reasons why Q4 was a little bit higher people that signed annual deals up to May, June, July got expired, they were dealing with the macro they pulled back.

In terms of our voluntary or involuntary, you got to understand, there's a couple of things.

We're less than one year out from the Silicon Valley Bank collapse and they are -- 100% focused on technology companies.

So a lot of those companies went away.

A lot of those companies are still in business, but they are navigating through the environment and they have to make sure they are managing their costs very closely.

So as the market picks up, as we talked about and the demand picks up, which it will, it's not a matter of if it's a matter of when, a lot of those companies will come back also to the customer count.

And I mentioned this earlier, you might have an organization that spending in North America, EMEA and APAC region made cut back.

And EMEA may cut back, but North America was still going.

That would decrease our customer count based on those regionals that we treat as separate businesses because we're working on separate contracts and agreements when the market comes back, you typically see you have centralized budget flush back into the field.

So that's the color that we gave you.

I cannot tell you if you look at the total customer count to revenue -- of again, I think the overall revenue per customer is actually up slightly in 2023 versus 2022.

So it's still -- and again, it's another sign we talked about in November, we'll say no, no major surprises, right now.

And this is what we're seeing right now.

We're navigating it, and we don't see things all out, and we don't see the catalyst up right now in the first half of 2024.

Really appreciate the color thank you.

That's very helpful.

And one more, if I could, I mean, I understand that it's very early days right now and this may not even be that much of a client facing effort at this point, but has there been any meaningful feedback from your clients, so far in terms of the reaction to the announcement of the Informa deal?

No not really, I mean, we're not really allowed to discuss -- but we're really focused on business as usual here and making sure we're doing the right things for the business.

But at present, I will tell you this my own view, I think is pretty but we talked about our M&A strategy for the last three years, I'm going to have a really high, get it better, and that's against my own point of view.

We talked about our strategy of driving our first-party purchase intent, data, permission-based audience, and content.

And so we've been very clear over the last few years and also getting into adjacent markets.

So we've been discussing this publicly the last couple of years as part of our roadmap strategy and this is the announcement with us and for everyone and they can interpret how they want -- we can't really share what we hear for feedback.

Okay really appreciate it.

Thank you for the color.

(Operator Instructions) Bruce Goldfarb, Lake Street.

Hi thanks for taking my questions.

With Google Chrome, new treatment of cookies.

Have you seen any increase lifted budget from long-time customers allocating more to attack TechTarget spend versus legacy cookie driven spend?

So as we all know, Google announced the phasing out of cookies starting in January and accelerate that throughout the end of the year.

It was just announced in terms of them putting that in action, definitely part of our playbook.

I mean, we are all first-party data, both at the prospect level and as well at the account level.

We're going to take advantage of that in terms of our go-to-market strategy and making sure that customers and we believe and even part of some of our product strategy, which you'll see us announcing Q1 will be the end of Q1 will be a powerful insights get remember, most of our customers have already bought prospect level intelligence from us, and we've identified the top of those prospects work in.

You have a lot of accounts that buy a lot of our customers also want modeling propensity modeling, ABM strategies with account only information.

So as part of our roadmap strategy and our product launches, you're going to see some announcements around our account insight feeds, which would be at the account level only and tying that into our first-party data versus Google phasing out third-party cookies.

We see that as a pretty big competitive advantage.

Thank you.

And then post -- I don't know if you can answer this, but post Informa Tech combination, should we expect new Board Chairman could be elected from the post-close directors?

Or could it be a director?

It could be, I mean it could be a new director.

Could be okay.

And then lastly, when do you expect demand and like in the legacy business to stop contracting do you think like Q3, Q2 or Q3 or Q4?

Yes, I mean, like you said, I mean the numbers and the guidance we gave the share of relatively flat, up 2% heading into 2024.

We still have you on the tech industry on the enterprise.

B2B tech industry still have high inflation, high interest rates and a lot of layoffs right now, that's a very good set of what I do know on this is we've seen pull backs before.

And we've seen customers have spent a lot of money, invest a lot of money in R&D.

We also see technology initiatives such as AI we've seen it with virtualization and cloud and other things before that create a pent-up demand.

And it's not a matter of if it's a matter of when the market turns around when customers turn from hey I got to watch everything I do on costs tried really to focus on growth through sales and marketing efforts regionally and globally, there were downturns, and I wish I had a crystal ball on that.

I mean, we've seen some signs again, natural last couple quarters, some{ stabilization.

When that turns, they will be a quick recovery in my opinion, but we've seen that in the past and where we see that recovery and whether that's Q3, '24, Q4 '24 for the beginning of 2025, our goal is to be ready for that recovery to take the upside in that.

And that's because you can see some of the investments we've made announcements that we've made that is a real focus for us right now.

Great thank you.

thank you, for your question.

There are no additional questions waiting at this time.

So that will conclude the conference call.

Thank you for your participation you may now disconnect your lines.