TechTarget Inc (TTGT) 2024 Q1 法說會逐字稿

Good afternoon, and thank you for attending the TechTarget reports first quarter 2024 conference call and webcast.

My name is Cameron, and I will be your moderator for today.

All lines will be muted during patient portion of the call with an opportunity for questions and answers at the end.

And I would now like to pass the conference over to your host, Charles Rennick, with the General Counsel.

You may proceed.

Thank you, Cameron, and good afternoon, everyone.

Speakers joining us here today are Greg Strakosch, our Executive Chairman; Michael Cotoia, our Chief Executive Officer; and Dan 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 have posted our shareholder letter on the Investor Relations section of our website and furnished it on 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.

This 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 Forms 10-K.

These statements speak only as of the date of this call in TechTarget undertakes no obligation to revise or update any 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.

A 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.

On January 10, we entered into a definitive agreement with Informa combined TechTarget with Informa 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 permission audience of over 50 million people.

The combination increases our TAM by 10 times as we will enter 18 new vertical markets with a unique end to end solution across our clients go to market.

We've been pleased with the progress we've made over the past four months, and we are track to have this transaction closed during the second half of 2024.

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 and with at least 35% EBITDA margins.

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

In regards to our first quarter, we are pleased to report revenues above consensus and we believe our investments and product offerings are and will continue to pay off.

We are forecasting Q2 revenues revenues to be in the range of $57 million to $59 million, $59 million which represents a 12% sequential increase from Q1 and roughly flat year-over-year.

We see that as support for a stabilized business with some signs of a return to normal seasonality.

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.

We expect a better macro environment in 2025 and 2026, which is good timing as the combined company will have additional scale to take advantage of the recovery of the recovery.

I will now open the call for question.

Perfect.

We will now begin the question and answer session.

(Operator Instructions)

Justin Patterson, KeyBanc.

Thanks for taking the question.

This is Myles Jakubik on for Justin.

And just to start, I would love to get an update on what you're seeing with the macro environment.

You touched on a little bit with kind of the transition from R&D spend as announced S&M spend, but maybe just touch on any updates you're seeing there and any change to visibility.

Thanks, Myles.

In terms of the macro, nothing has really changed over the last several quarters.

We still see the enterprise technology market being facing some headwinds with high interest rates, inflation.

As we mentioned in the shareholder a lot of international, tensions and then you have an upcoming presidential election.

Well, I'd say we've been a business we're going to be celebrating our 25 anniversary this year.

Being in business and we've managed through several pullbacks.

Can you know, our playbook is pretty simple.

We leverage our strong balance sheet to take an opportunity to invest in the right areas around product evolution, functionality, audience and content to make sure that we continue to be the leader when it comes to B2B of enterprise, B2B marketing and sales services for our customer.

So, there's no real catalyst.

We feel that the investments that we're making are paying off.

We've done a lot of stuff on our product plan in terms of leveraging some of our AI functionality and capabilities, our first full quarter that our customers have been able to leverage our intent, mail dot AI., through which we've seen a great retention and increasing usage from sales user data in our platform and leveraging our prospect level intelligence for email outreach and automation.

Again, based on our prospect level intelligence and we combine it with our customer's most recent and most relevant product marketing positioning.

So we're seeing healthy adoption on that retention, competitive usage of repetitive usage of our map on that is going to continue to expand the features to work with multi female sequences and integrations into sales engagement platforms.

So kicking around the platform and making sure we're making the right investments, as we mentioned in the shareholder letter and in Greg's opening in 2024 -- doesn't present a lot of catalysts in terms of high interest rates and as I mentioned, the high inflation, but we know a couple of things to be true that the market will retard.

Interest rates are low and there will be a recovery.

So to make sure we're making the right investments today to capture that recovering.

As you can see in our Q1 results and our Q2 forecast, we feel we're doing the right things to navigate through this challenging macro.

That's helpful.

Thank you.

And then maybe just building off that last point about investments in new products, it seems like there's some upcoming improvements priority Engine and maybe a little bit more focus on the direct integration side.

So just love to hear about how you think about current prior product priorities as you kind of invest through the cycle.

As I mentioned and tell me how much is Genarative AI offering is one full quarter under use.

We've got a big focus on integrations into our top customer CRM, marketing automation platforms.

But over the last six to nine months and beyond, we really made a concentrated effort of integrating our Priority Engine information and data into other technology platforms while we reallocated in investment in internal resources to help support customers who want to integrate Priority Engine data into existing workflows within other platforms.

We have announced some partnerships and we're going to continue to announce strategic partnerships throughout Q2, Q3 and Q4, and we're working with partners that have a we are focused on a share of a critical mass of joint customers.

And our customers are looking to get the benefits from TechTarget first party data being leveraged with our partners' existing platforms.

So we're seeing some good success on that and it's a big focus for us.

And we're pleased where we are with this one place the roadmap.

Thanks, Mike.

I appreciate it.

Bhavin Shah, Deutsche Bank.

Great.

Thanks for taking my question on just kind of on that last point in terms of product improvements, just on the intent now from Priority Engine, kind of when do we think about that kind of helping translate over to kind of improvement in the long-term revenue as that kind of continues to lag overall total revenue growth?

That's a great question, Bob.

And so the investments we're making now and again, content mail being one of them and I'll get into some of our roadmap around Priority Engine, which will help support a question you just asked for.

It's really very important for us on two fronts, getting our customers continuing to use and are engaged in the platform as well as the integration story.

And those are big investments that we've talked about, and we're making some really, we look at it some good progress against both of those areas.

So on internet mail.

That's one version of our personal assist product family from these other avenues that we're looking to do in terms of expanding those features to work with, as I mentioned, multi e-mail sequences and integrations with sales engagement platform.

So things like sales loss and outreach and organizations like that, that we want to have access to close the global intelligence as part of [ISDR. or BT], our cadence of outreach to customers.

So again, integrations, personalized data at a process level data creates stickiness, more engagement and more and more usage.

Our recent integration strategy expanding we're doing on that end.

And in terms of the Priority Engine road map, we have a very large initiative that we're evolving the platform.

So globally, other TechTarget offerings into a more into a common user experience.

So that will be driven by unified visualization of program impact action in Tempe and sized to support program decision-making and the ability to identify and take action with our combined teams.

So if you look at this, it's more about getting no end to end solution offerings from call center demands brand fall inside a unified platform so customers can have access and insights and visibility.

We updated visualizations of how the overall programs are doing versus being siloed into a content offering only.

So that both the investments that we're making, we're seeing good traction on that, and you'll be seeing some announcements at the end of the second half of 2024 about the road map in the US, the overall Priority Engine platform and capability strategy.

Got it.

That's helpful.

And just one follow up a little bit more macro related, but it looks like your top 10 largest kind of legacy customer base, their revenue grew in the quarter, which is great to see for the first time in a while, but the remainder continues to decline year-over-year, anything to call out macro-wise, SMB or large enterprise that you can notice a difference.

You know, our family of enterprise accounts.

We've talked about over the last several quarters, some of the key acquisitions and investments we made with Enterprise Strategy Group right talked and intelligent creative and go to market strategy and product offering to help our customers.

So in terms of enterprise accounts.

So we have more entry points now with our product portfolio position and our capability set you get in there from a research intelligence and advisory to creating strategic content to put into programs them at activating against the right accounts.

And so we're actually seeing great momentum in terms of penetrating different budget stakeholders across the entire go to market strategy.

And that's makes lot of sense in terms of the larger the account, the more pockets and for more and that we can get involved in.

In terms of the smaller towns, I think this market is absolutely puts some headwinds against the smaller accounts, but again, I go back to our product offerings that we have today versus what we had two years ago, where we have different entry points and different entry points and drive value for our customers.

And what I mean by that, if a customer and an SMB or don't smaller account isn't ready to do in 10 for 11 to Priority Engine subscription, they might have a need for one lower end of the funnel confirmed projects.

We might need some help with their positioning.

So we leverage the ESG capabilities with our product drive sales in that content creation, they might want to do demand over a quarter versus a year as we navigate through this environment.

Again, it's only been 14 months since the collapse of Silicon Valley Bank.

A lot of these smaller accounts, although they're right-sized their budgets, pictured in managing expenses and looking for true value propositions to them to meet their leverage of content, whether it's the brand proposition, demand or intent.

So we feel we're in a pretty good position in terms of engaging and providing value for those SMB customers.

Thanks so much and appreciate taking my questions.

Joshua Reilly, Neil.

Thanks for taking my question.

So as we're looking at the June quarter guidance here, I believe typically historically you guys have talked about how are the new product releases by your customers can drive than the typical seasonality with a sequential increase in revenues.

Just wanted to understand, is that what the normal seasonality is that winter?

What is driving the improved revenues?

Or is there some other maybe factor at play there that we should be aware of.

But I have a couple of things, Josh.

I think it's first of all, it's the breadth of the product offerings that we have that can really when you walk when you work with customers, we might not be ready to do annual or multiyear deals.

They still need to help support their sales targets now pipeline, revenue forecast.

And as we said before, even in a down market when that market recovers is going to be a flight back to quality and that quality is going to be driven by first-party purchase intent, data and commission-based audiences.

But our conversations with those customers started in the middle of last year, we said we're starting to see some normalization of some things starting to stabilize.

He's really understanding how we can serve their needs based on what our customers are really focused on today that's paying off right now.

So as we believe it was, we came into 2024 our portfolio was well architected, well position in being able to like some accommodate what our customers' needs, again, leverage of our content strategy for brand to demand to win intend.

Well, yes, part of the panel confirmed projects and qualified sales opportunities.

The quality of our data and the quality of our investments are paying off.

Now we just launched and announced for the running of a multiple multiple data flash early adopter program around our account insight, see substantive new Priority Engine offering that was announced that really won't have any revenue impact in Q2 because it's a different use case.

Well, our prospect Global Priority Engine offerings.

This new offering is accounting sites only for the use for our customers and against their programmatic AVM initiatives and propensity scoring.

So again, I go back and say first party data is with Gold and not only at the prospect level, but also at the top level.

And we believe with the future of Google announcing that they are up to the double-digit third party cookies.

Now looking at Sunset that now in 2025, which create another revenue stream, that's going to be very impactful for our customers with new buyers and new case studies that we weren't able to get into the mix before.

So that's what we're focused on.

But in terms of the June revenue, I mean, we've added to this project in this two quarters ago.

We expected Q1 to be down around 10%, Q2 we're going to close the gap between.

It's relatively often in Q4.

Now we see an increase in revenue year-over-year.

So we're on track what we've laid out through loan growth.

We're pleased with the performance of the business.

Got it.

That's very helpful.

And then how should we think about the gross margin leverage moving into Q2 as we know your margins are sensitive to the overall levels of revenue, but then you also have a lot of other investments you're making here?

Or there any other considerations that we should be thinking about as we kind of model our Q2 gross margin and going forward?

Thanks, guys.

Thanks, Josh.

So again, we plan to make the right investments to help the business scale and to and to drive margin expansion.

So in some areas that we've done this year is we're totally implemented a workflow management solution, so provides end-to-end visibility from our contracts to execution to close the billing and we feel this is the right investment so we can streamline the visibility and the information across our above product fulfillment sets up our sales.

Our sales operation teams and our customer success teams.

So when the middle of implementing a workflow solution on that, we expand the scope a little bit.

But at the end, what that will do for us is provide better visibility and be able to create a more efficient cost to sales as we head into Q4 of 2024.

So we're in the middle of doing that right now.

It's something that we knew we needed to get done.

We made the right investments on that.

So you see a little bit of cost on that but at the end of the day, positive Sales and hes still more efficient and continue to help expand margins.

Got it.

Thanks, guys.

Bruce Goldfarb, Lake Street Capital Markets.

Thank you for taking my call and Greg Michael, Dan, congrats on the results.

Just a question on long-term revenue.

Where do you expect long-term revenue as a percent of total revenue to be at the end of 2024?

Well, first, we expect that to be in the low to mid 30s , when we talk about 2024 with the pullback and of the continued macro environment, that's why like can we look at this combination that we're doing and we just feel like this is the absolute right time to be doing this.

When you take a look at what we evaluate, where we have a supplier or do evaluate different assets.

We look at a few things, we will get audience and we look at permission-based audiences.

We look at first-party insights and as we predicted, the last couple of years and going into 2025 first party purchase intent, insights are going to be a premium.

There content and content capability.

They drive more revenue under long-term contracts.

And room for penetration into new tech-enabled vertical markets.

So take a look at the assets and the quality assets that we are merging with Informa Tech digital business around industry guide and around Ontario in the 70 special digital media brands in that line, Informa Tech business, which is largely intelligence, research and advisory, combined with our Enterprise Strategy Group business.

If you take a look at the MP business, about 65% of their revenue on the long-term contracts.

So really important now the timing is right now to get all these asset quality assets together combined integrated in and be ready for the recovery.

So yes, we might be at a low to mid 40s this year, but three to five year plans.

They have revenue over 50% on long-term revenue contracts.

Thank you.

And then in terms of the merger with Informa Tech, are you getting any inbound inquiries from Informa Tech customers regarding working with the with the TechTarget.

That wouldn't really got any inbound customers on inbound to us on this, and we will we're working right now ,as we mentioned in the shareholder letter.

And I think Greg's introduction, and we're really happy with the progress that we've made.

We have really strong conviction on the timing of this.

We're focused on our business as usual, but also making sure that we're ready for the combination.

So which we are still scheduled to have complete in second half 2024.

But we haven't heard directly from Informa Tech customers reached out to us.

Thank you.

And then I saw like you weren't active on the buyback during the quarter.

Are you likely I'm quiet until after the Informa Tech transaction closes?

Yes, I think really it's required.

Yes, we're going to be pretty quite on that.

I think that probably wise the unless the end of November 2024 anyway.

So it's coming up anyway, that Thank you and thanks for taking my questions and congrats on the results.

Thank you.

There are no additional questions waiting at this time.

I would like to pass the conference back over to the management team for closing remarks.

A lot of questions, on remarks.

Very much appreciate everybody joining and talk to the next quarter.

Thank you, everyone.

That concludes the TechTarget reports first quarter 2024 conference call and webcast.

Thank you for your participation and enjoy the rest of your day.