TechTarget, Inc.

Good afternoon and thank you for joining the TechTarget reports second quarter 2023 conference call and webcast. My name is Kate and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call over to our host Charles Renick with TechTarget. You may proceed.

Thank you, Kate, and good afternoon. Joining me here today are Greg Straykosch, our executive chairman, Mike Gattoya, our chief executive officer, and Dan Norick, our CFO. Before turning the call over to Greg, I 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 website and furnished it on an 8K. Following Greg's introductory remarks, the management team will be available to answer your 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 factor sections of our filings with SEC. These statements speak only as of the date of this call. and 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 efforts, accompanies our shareholder letter. With that, I'll turn the call over to Greg. Greg, thank you, Charlie.

We are pleased that we hit our due to 2023 forecast despite the continued macro weakness in the technology market during the quarter. While it is too early to say that we are seeing a recovery, we believe the environment feels like it is stabilizing. We are maintaining our previous guidance for 2023. While nobody wishes for a downturn, historically, we've taken advantage of these down cycles by using our market leadership and strong balance sheet to reinvest and optimize the business for the eventual upswing. We are optimistic that we are currently doing the right things that will pay off for our customers, employees, and shareholders in the future. I will now open up the call for questions.

Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by A1 on your telephone keypad. If for any reason you would like to remove your question, please press star followed by A2. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Again, to ask a question, please press star followed by a 1. We will pause momentarily to compile the roster. The first question will be from the line of Justin Patterson with KeyBank. Your line is now open.

great thank you very much and good afternoon uh greg and team i just wanted to tease out that point you just left on as you mentioned long time long time tech target shareholders know that you view uh downturns as an opportunity to really reposition the business so if we come out of this downturn how should we think about just the the pace of growth uh for tech target especially if you lean into these categories like ai that you uh teased out in the letter a little bit and then Second question, I'd just love to know a little bit more about what you're seeing on the macro. Obviously, it's still choppy out there, but you did hit numbers this quarter. You did reaffirm the guide. I'm curious if you're seeing a little more stabilization and signs of things just not getting as bad anymore. Thank you.

Great. Yeah, Justin, in terms of navigating through the downturn and taking this opportunity to invest back into the business, That's going to help us accelerate what we believe will get back to normalized growth, which we've seen in the past with double-digit growth. So there's a lot of areas that we're really focused on during a downturn, and our playbook has always been making sure that we're being aggressive with product and feature rollouts, making sure we're doing the right things internally to reallocate resources to pivot against the right initiatives and the right priorities. And then part of this is around timing of the macro, as you asked as well. As we note in the letter, we don't see the macro improving tremendously, but we are seeing some signs of stabilization. As we mentioned last year at this time, as we went into the slowdown, it might take three, four, five quarters for companies to navigate through this, but at one point, they're going to need to feed their pipeline. And there's typically a flight back to quality around first party data, prospect level intelligence, market alignment and proximity. And that's not really a matter to us if, it's more of a matter of when. And we think when that comes back, we will see the growth that we're used to, double digit growth moving forward with incremental EBITDA margins expanding and overall margin expansion.

Thank you.

Thank you. Thank you.

The next question will be from the line of Josh Riley with Needham and Company. Your line is now open.

Hi, this is Rob Morelli. I'm for Josh. Thanks for taking the question. With the cycle incrementally challenging, how should we think about trends in the second half of the year? You know, given the normal seasonality, you know, we'll be at 10% sequential increase in revenue from Q3 to Q4. Is that seasonality still in place?

Yeah, Rob, I think as we look at it and you take a look at the current macro conditions, you know, it sort of changed a little bit this year, right? So we've been pretty, like, if you look at the overall guidance that we reaffirmed this year of $225 to $230 million in revenue with $65 to $70 million in EBITDA, I don't think you're going to see any major swings in terms of Q3 to Q4. I think you'll see some growth in Q4 versus Q3. It's kind of early to tell on that, but it does go back to what we're really focused on, the investments we're making around the products, the investments we're making around the content side, the Gen AI opportunities that we're working on as an organization, and then our customers that really need to focus on building that pipeline going into Q3 the end of the year, and into 2024. And the best way to build that pipeline is through quality data, quality insights at the account and the prospect level. So you can really marry it out in terms of you can reconcile the range based on what we gave for guidance, which is well aligned with what we had on the analyst side, and plug in your Q4 numbers that you see, and we're going to align to that range that we announced back in May. So that's how I would look at it right now.

Got it. That's helpful color. And one thing we've heard from competitors is new business cases are the most challenged in the current environment. You know, how would you position the tech target product set in terms of use cases for new customer acquisition, you know, for upselling existing customers and, you know, engaging retention? Thanks.

Yeah, what I say on that is I think in this type of map, when we talk to customers, new business cases and new logos is always a challenge because, you know, as you can see in the tech market, There's been a pullback on spending. There's been layoffs and things like that. But again, this goes back to there comes a point in time, and this happens during every down cycle, when our customers need to really engage and build up a believable and trustworthy pipeline. And so when that happens, I think there are three things that will bear fruit on that. Number one, there will be a fight back to that new logo acquisition. Two, there's always going to be land and expand, protect your existing customers. And I believe, three, as we get through this expense cleansing cycle, the customers are going to be very particular in terms of what investments they make to make sure they're really driving ROI through the product innovation and through our alignment to our markets and through our prospect level intelligence. We think we check all the boxes on that. So we'll see that hopefully sooner rather than later. But this is something that we're planning to see going into 2024.

Got it. Thank you.

Thank you. The next question will be from the line of Bob and Sean with Dosha bank. Your line is now open.

Great. Thanks for taking my questions. Uh, just, just kind of following up on what you saw kind of play after the quarter and what you're seeing today. Can you just maybe elaborate a little bit more from a product perspective on any changes you're seeing from priority engine to maybe some of your other kind of more marketing focused solutions? I mean, even from a customer kind of cohort perspective, larger customers versus small customers, any kind of difference you've seen in terms of improvement, stabilization, that would be helpful.

Sure. So, Bob, on July 20th, we announced one of our largest launches on priority engine. There were three or four key areas that we really wanted to focus on. Number one was our Salesforce integration with our new Salesforce connector. And what we're really focused on now, we've talked about this in previous earnings calls, with enabling our customers to really leverage their own first-party data and align it with TechTarget's first-party account and prospect-level data, but also allow our customers who are using third-party data-driven ABM platforms to sync that data with their first-party data within their own CRM system, along with TechTarget's first-party data at the account and prospect level. That helps with cadences, workflows, ABM strategies, sales outreach, because you want to combine all the data sets and really understand not only at the account level, but which prospects that you should focus on based on their activity. So that's been a pretty big enhancement for us. We also launched a new UI UX interface to help on the sales side, reps within our accounts have a shortcut to the most critical account list territories data. For example, they can favorite some of their accounts and store them, favorite some of their prospects and have it right in front of them with one click. They can add to their CRM. They can view contacts now and identify contacts who've actually viewed their marketing content to have a quicker and more engaged conversation. The other thing that we launched was our account journey visualization. It's been really key for us because we want to show how the account is engaging across the target network. What buyers are researching? When are they researching? When do they become a lead? And also, the sales reps within our clients, how and when or what are they doing to engage with those accounts? So now we have insights that help them show this is what your marketing investments have done with TechTarget. This is the outreach that we are seeing. This is what your sales teams are doing or not doing. So it's all about attribution, visualization, and holding everybody accountable. That was a really big launch. And then we updated our new opportunity dashboards. We want to make sure that we are getting as much attribution and visualization and transparency about the data that we're providing to the accounts and the prospect level, GDPR, consent-based prospect members of our buying teams, and show how those efforts are working against opportunities that have been created so they can look back and see the impact in that marketing level and that marketing spend, as well as opportunities that have been created and how are we accelerating them from opportunity creation date to closed one, as well as closed loss. So there's a lot more that we can do with that around insights about why you win a deal, why you might lose a deal. So that's part of the roadmap. In terms of the other marketing opportunities and products, I mean, we're in a really good position today versus, you know, prior our breadth of products has expanded. So we have different avenues to walk in and show value for our customers. So for example, if a customer today in a choppy macro doesn't want to sign up for a one, two year priority engine subscription, but they have a need around content strategy. about positioning their product, showing an economic validation, why they should, you know, choose, you know, a technology buyer should choose their solution. We can walk in there with content strategy and content enablement services. We can walk in there with webinar capabilities, not only to promote to our members, but to help our customers promote their own database, where we've relaunched and updated our whole FastPass reg, which one-click to register based on the information we know about uh prospects from that customer's database that are already opted in and permission based we walk into our branding elements our content marketing elements demand generation elements so now what a customer says i can't commit to x but i have these problems at y and z we have a reason to engage and deliver value i would say we've seen some shiny you know points with some of our strategic accounts, those larger accounts, and we talked about this last quarter, how we revamped the sales organization, where we created pods that we have an ESG, which is our content enablement services opportunity and capability set, a BrightTalk and a Tectographer all engaged within these accounts, so that they are bringing that end-to-end capability set but entering where the customer needs or has a demand, a pain point, or a value that they need. So we're seeing some signs of that. I think as somebody else mentioned on the call, I think a lot of our clients are staying very close to their existing clients. They want to be in front of their existing clients. I think as this market continues to go from stabilization to growth, you'll see a flight back to net new logo, focus, penetration, as well as land and expand.

Super insightful and detailed. Just a quick follow-up on AI. I know in the letter you talked a lot about some of the investments you're making and the opportunity there. How do we think about maybe the opportunity on leveraging some of the generative AI on the content creation side of things and being able to kind of offer more articles and features leveraging kind of gen AI? Thanks.

Yeah, that's a great question. So, I mean, when you look at gen AI, you've got to look at the market that we serve. And we get a lot of questions around generative AI. And the markets and the constituents we serve are the technology buyer and the technology vendor. And on the technology buyer side, we've all seen the demographics of our buyers driving towards a millennial stage buyer that wants really deep, insightful content. There was a Harvard Business Review study that came out at the end of 2022 that said millennials, 54% of millennials in the tech buying stage want a rep-free experience. They want to get engaged with relevant content. we serve an unbelievable opportunity and when you remember why people go to tech target it's because of our market alignment our content that we serve up we dominate an organic google organic search and we're serving the buyers information so one of the things that we've worked on we hired paul healy who's running our generative ai uh strategic strategy on this is when customers go to google which we continue to dominate and come to tech target sites we're going to be able to as part of our roadmap, set up a prompt type capability set through GenAI to help serve up all the knowledge-based content and the insights around that particular topic that those researchers are looking at. And I'll say this, like, there's nobody else that I can think of in this enterprise B2B tech area because of the lack of investments in content and our strong investments in content that can serve that up. So if I go in there as a buyer, I go to Google, I search XYZ, I end up on a tech target community, I'm reading my articles and I get prompted, what else are you looking for? What else can we help you with? Ask a few questions. Then we can serve up content from our BrightTalk community, which is protected right now, vendor content, our enterprise strategy group research content, market insights, everything served up for that buyer. So it provides a better experience. And then the flip side, it drives more engagement, more insights, and more capabilities for us to productize to our customers at the end.

Thanks for taking my question.

The next question will be from the line of Brian Bergen with TD Cohen. Your line is now open.

Hi, guys. Good afternoon. Thank you. I wanted to start just kind of a double click on the feeling of stabilization. So can you just talk a little bit more about the confidence in calling, that feeling? Is it a result of more leads within your sales funnel? Is it actual signings? Is it just a slower level of touches? Can you give us a sense of what's I guess, contractually committed in that revenue outlook as well to get comfort in the full year?

Yeah, we don't disclose what we have contractually committed. But, Brian, here's what I can tell you is, you know, we've seen through the conversations with the sales teams, with our customers, our customer success teams, the conversations feel like they act like what we stated in the shareholder letter. There's more of a stabilization. As you saw at the beginning of the year, it was a little bit of a free fall. People didn't know. There was still layoffs going on and there's cost cuttings. But it's also some of the breadth of our offerings that we talked about a few minutes ago are giving us other entry points to get into the door to bring value to our customers that might not want to sign, as I mentioned earlier, a one- or a two- or three-year deal. But now we have a reason to engage around, again, around messaging, around creating leads, you know, increasing database, even branding activities. So we're seeing that. I would say, you know, we don't disclose it, but, you know, we've seen it, the trend in bookings, too. We've seen deals that have, you know, if you looked in the past quarter where they may have committed, we had an assert percentage in our Salesforce, you know, forecasting that got pulled back. We're seeing some of those, a lot more of those kind of fruition in terms of signage. So it's early. I don't want to say we're out of this, but the signs that we've seen over the last 30, 45 days are trending cautiously optimistic.

Okay, that's good to hear. And then as it relates to maybe pre-cash flow and capital allocation, just first off, anything to be mindful of on pre-cash flow, maybe conversion off the EBITDA for the second half. And as you generate cash flow, can you just give us a sense on capital allocation priorities, how you're feeling about M&A appetite here, just given that large cash position versus more active share repo deployment?

Yeah, so no real change in strategy. We're looking at M&A opportunities. And as we say in the shoulder letter, we're looking at share buybacks and potential debt buybacks. So we'll, you know, continue to be opportunistic on both fronts there.

Thanks.

Thank you.

The next question will be from the line of Bruce Goldfarb with Lake Street Capital. Your line is now open.

Thank you. Thanks for taking my questions and congrats on your results, especially given the current macro environment.

Thanks, Bruce.

Have you guys, have you seen a recovery in demand from accounts that were impacted by the collapse of Silicon Valley Bank?

Well, I would say we don't break it down, but I would say, Bruce, that's four and a half months old, so there's still some repercussions going on to that. What I would tell you is We haven't run into any cash collection issues that we report on that. We're still engaged in conversations. They are. Some of those accounts or a good amount of those accounts are spending. They're watching their budget. Like of all people, I don't want to say of all companies, but when you VC back and you're running to grow at all costs and then the brakes get jammed to a halt, you're very careful on what you spend and you want to make sure that you're getting ROI and you can attribute your investments to that ROI. I believe, you know, as we continue to navigate this for four and a half months since the market, you know, collapsed on that, you know, our conversations are about that. But what do you need to do? What do you need to accomplish? What do you need right now, and how can we help you? And then here's the breadth of products that not everything might fit for you, but we're going to put the right products with the right solutions in front of you versus, I would say, pre- SVB collapse, we could be in those conversations, and their appetite might have been bigger than it should have been, where they wanted to get everything. So we're going to see this gradually as they pick up, and we haven't seen an adverse impact right now, but in terms of conversations and go-forward opportunity, but it's still fairly early. It's four-plus months since the March 8th date.

Thank you. And do you... believe that the install base could support a price increase in 2024? I guess assuming macro, you know, you know, I guess a significant improvement in the macro, I guess.

You know, I don't want to answer that right now. If you asked me today and I don't have a crystal ball, I would say I'd be very careful on doing a price increase, but it also depends on on the feature and functionality launches that we have coming down the road, which might warrant a price increase. But we're not there yet, and we're taking this week by week, quarter by quarter, and then we'll let you know in November when we're launching it.

And then have you seen any change in your search rankings with the arrival of AI-assisted search, you know, like ChatPete, GPT?

No, we've seen our search rankings continue to grow. I'll say we dominate in enterprise B2B tech. Our search traffic to our enterprise AI site was up, like, 120%. If you type in gen AI or generative AI or what is gen AI or what is generative AI, the target's ranked number one. We have a lot of articles. I don't know the exact, but it's hundreds that are ranked, known organically. So we continue to do really well in that Google and Microsoft thing will continue to drive, um, you know, researchers to trusted and sourced communities and publishers. And that's a really key differentiator from what we offer.

Great. Thank you. And then my last one is, I mean, you guys were active on the buyback during the quarter. Do you think you'll be active or. Do you think you'll have appetite, you know, at current prices, current stock price?

Yeah, I mean, like I said, we're going to continue to be opportunistic, you know, and that's been our track record, you know, and so I expect us, you know, to continue to stay the course on that strategy.

Great. Thank you. Congrats again, and thanks for taking my questions.

Thanks, Bruce.

Thank you. The next question will be from the line of Cash Ragnon with Goldman Sachs. Your line is now open.

Hey, guys. This is Jacob Monk for Cash. Thanks for taking the question. Just one for me. I wanted to ask what was meant in the shareholder letter by you're using the slowdown to optimize your organization with an eye on streamlining operations, improving go-to-market processes, and reducing expenses where appropriate. Can you maybe touch on more so what's meant by that? Does that mean potential rifts? And anything around that might be really helpful.

Jacob, as you're probably well aware, we made a few acquisitions over the last couple years, and so they're on disparate systems. And one of the things that we had a real big focus on this year was streamlining those systems, the efficiencies, the reporting, the customer experience. So, for example, we had three different Salesforce instances. We've integrated that into one. We're looking at other workflow management tools and solutions. way we deliver our data to our customers or way we capture it we're streamlining that which then we can take some of those resources and reallocate them to other projects that are priorities we don't plan a rip we plan on making sure we we believe we're at the right head count we plan on driving the most um efficiencies but we also want to make sure that we're properly staffed to align with those priorities and those opportunities that we have and that's what we meant by that

Awesome. Thank you so much.

Thank you. That concludes today's Q&A session and today's conference call. At this time, you may now disconnect your lines. Thank you for your participation.