BP Q1 2023 Earnings Call Transcript

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May 9, 2023

There are 9 speakers on the call.

Operator

Afternoon, ladies and gentlemen, and thank you for attending today's TechTarget Report First Quarter 2023 Financial Results Conference Call. My name is Danielle, and I will be the moderator for today's call. All lines will be muted during the presentation portion of today's call with an opportunity for questions and answers at the end. It is now my pleasure to hand the conference over to our host, Charlie Renick, General Counsel. You may proceed, Charlie.

Speaker 1

Thank you, Danielle, and good afternoon. Joining me here today are Greg Straykosch, our Executive Chairman Mike Cotoia, our Chief Executive Officer and Dan Norek, our Chief Financial Officer. 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 8 ks. Following Greg's introductory remarks, the management team will be available to answer your questions.

Speaker 1

Any statements made today by TechTarget that are not factual, including during the Q and 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 filings with the SEC. These statements speak only as of the day of this call, IntechTarget 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.

Speaker 1

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. Great.

Speaker 2

Thanks, Charlie. GAAP revenue was approximately $57,100,000 a decrease of 16%. Adjusted EBITDA was approximately $17,600,000 which is 31% of revenues. Longer term revenue was 41% of total revenue. Free cash flow was $14,700,000 which represents 26 percent of revenues.

Speaker 2

The technology market continues to be besieged by weak demand, Widespread Layoffs and Budget Cuts. If that wasn't challenging enough, the leading technology bank failed in the quarter, which we believe increased negative sentiment among our customers. Our results reflect these challenging macro environment. I will now open the call to questions.

Operator

As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Justin Patterson of KeyBanc. You may proceed.

Speaker 3

Great. Thank you very much. 2 if I can. First, in the letter, you teased out some of your thoughts on AI I'm curious how much when do you think we can start seeing some of the benefits from AI flowing into the business And just to kind of frame some of the investment that you're making into it right now. And then secondarily, just thinking about EBITDA guidance for the year.

Speaker 3

You noted that reinvestment is one of the few areas you can control in this market right now. How should we think about just the guardrails around it, annual EBITDA guidance? Thank you.

Speaker 4

Great. Justin, this is Mike. In terms of The AI benefits and the framework around some of our AI initiatives, we've been working with AI technology Quite some time, but we see an opportunity in the business. We recently announced the appointment of Paul Zeoly to run our AI strategy, And we see several key areas that we'll see opportunities to help really accelerate the business. I think it's important to note that there's a lot of announcements right now around AI and what you're going to see is a lot of content being disseminated across the entire web, Very thin content, not really specific, addressing current concerns and needs.

Speaker 4

So there's going to be a call it content dilute And that's going to be out there in the market. But for publishers and strategic content providers like TechTarget, we believe it's a competitive advantage. We have a lot of insights, relevant insights, relevant content that we supply to technology buyers to help them do their research day in and day out. So got a business for 25 years coming up next year, providing technology buyers really strong content to help them when they're doing their research. Out of that content that we've invested, we've extracted and we've been able to maintain and gather really valuable insights At the buying team level, at the account level, and so what we see is the opportunity to help our customers Action against the insights that we can deliver, A, in the product portfolio and the product suite.

Speaker 4

So as you know for years, We're kind of at the mercy of our customers to action against the data and the deliveries that We've provided to them in their campaigns. And now we'll be able to have very strategic, insightful Next step is to help them action and trigger very specific email outreach, phone conversations and then content strategies. As you know, our content enablement business is a very strong opportunity for us and it's something that we made some investments in on ESP and Bright Talk and TechTarget together. We have the content that we provided on our editorial and the analyst sides, but also our customers need to have an effective content strategy And be able to leverage that content strategy from our capabilities and partner with AI as well will help them provide that Effective content strategy to engage with those buyers. And we talked about this before that buying team demographic Continues to change.

Speaker 4

And one of our I think we mentioned this in our last earnings call that over 50% of technology buyers wanting a ruthless experience, which means they really rely on content to make informed decisions about 6, 7, 8 figure acquisitions that they want. They can't be fooled by thin broad based irrelevant content that's not recent and relevant. So being able to help our customers tying in those insights to help power and empower their content strategy It will be an effective play for us that we have as a publisher and as a community with proprietary first party data insights. So we're excited about that opportunity. In terms of the EBITDA margin for the year, we talked it's really important we understand that the technology market is really Challenge right now.

Speaker 4

I think you can see that through all the announcements on the layoffs and budget cuts, it's just throughout. And then you tackle on the collapse of Silicon Valley Bank that had 30,000 plus customers, all technology focused, many of them VC backed. So it's challenging on that front. But in terms of EBITDA, we still need to make sure that we've managed downturns in the past. We have a very effective playbook.

Speaker 4

We believe there's still a really good opportunity to make the right investments in the right areas. One of them I just mentioned around AI, we can talk about some other ones later in Some of the product enhancements and what we're doing. So we want to make sure that we're being opportunistic. We will manage our discretionary spending like we have as part of our playbook for 24 years and we will do a good job on that. We have a track record on that.

Speaker 4

In terms of guide rails, we're estimating about 30% EBITDA margin. I think those are the right That's the right ballpark to assume with the updated guidance and the go forward strategy.

Operator

Thank you. The next question comes from the line of Josh Riley of Needham. Please proceed.

Speaker 5

Hi. This is Rob Morelli on for Josh. Thanks for taking the question. Kind of carrying on with that the topic earnings Silicon Valley Bank, how should we think about the impact from SVB influence and confidence among your customer base. And then can you remind us of the exposure to venture backed startups?

Speaker 5

And have things improved subsequent to the quarter end on trends with these customers? Thanks.

Speaker 4

Yes, great question. In terms of the Silicon Valley, as you know, they were Now, 100% focused on the enterprise pet market and a lot of those customers that they serve, which I believe is over 30,000, A lot of them were VC debt firms. Our business has evolved in a nice way over the last several years in terms of our customer segmentation. If you look back at our business 10 years ago, close to 40% of our business was garnered through our top 10 global accounts. And today that's below 20%.

Speaker 4

And we have 3,000 customers. You can imagine like we span across all customer sizes and segmentations in the enterprise Silicon Valley Bank, the economy and when I say the economy, the macro the technology specific macro environment was challenging as it was. We noted that in Q4, we started in Q1, there's no surprises on that. You can see by the layoffs, you can see by The cuts that we're seeing day in and day out, which is still carried into Q2. Silicon Valley Bank brought another A lot of uncertainty and a lot of jitters to the market.

Speaker 4

So if you can imagine those customers which We serve we have a good size of our customer base that serves those smaller customers for VC backed software based organizations. They went through a very challenging period. There's a lot of uncertainty in gymnast. And I don't think you see a lot of the VCs right now ready to hand over another check where they want to make sure that these companies are making the right Decisions around the expenses, discretionary spending, making line item cuts, as we are a premium player in the market, we always want to to be that premium player because of our content investment, our first party purchase intent data, those line items get scrutinized across all segments of our customer base, And that includes the VC backed funds. So we believe that that card is another jolt on a negative way to the economy.

Speaker 4

I think we've all seen it, everything you've read and you've Technology landscape fits that. So we're dealing with it. We're working with our customers to make sure we're dealing with it. I would also say that we talk about the enterprise tech market and that is the worst performing sector right now in the markets. It's also probably the most sound long term sector in the market, where we have the ability to see if you talk to 100 investors, think 100 out of 100 would say the long term viewpoint of the enterprise A2B tech sector is very strong and something to do with invest and bank on.

Speaker 4

So that's important for us. So yes, we're managing through a downturn in the market. Our business is 100% aligned to enterprise B2B tech. So we are going to feel that pain. I think others that we talked to probably feel a little bit worse as well.

Speaker 4

But when that market Turns around, we also capture the upside and that's why we're making those investments that I mentioned earlier.

Speaker 5

Got it. Thanks. And then as you kind of mentioned, just the layoffs within the tech industry, have you started to see Some of those impacted land at new opportunities and have they started bringing you guys in as they were champions of your product at their last jobs in sales and marketing? Thanks.

Speaker 4

Well, some of those people are still looking for jobs, so that makes it very challenging. And then the people that are staying with the company that maybe not were caught in the layoff I'm very hesitant. Again, this whole mood of uncertainty, when you're uncertain and you're hesitant, you're very cautious About spending even the budget that you have. So you might see some pick ups and some in terms of some pockets that we see, but the mood is very Focused on uncertainty and for those folks that listen, I will tell you this, we have really good relationships and we have a good brand and we have a good recognition with our customers. Typically, if somebody does get laid off and goes to another customer and this has happened, they will call us to bring us in.

Speaker 4

And I can tell you that that's happening. The thing that you just want to make sure of, some of those folks have not landed a job yet. They're looking for a job. And the folks that have remained in their jobs that weren't cut I'm very hesitant in terms of making that additional spend or that investment right now until we see more clarity and visibility into their job and into the market.

Speaker 5

Got it. Thanks for the color.

Operator

Thank you. The next question comes from Bryan Bergin of TD Cowen. You may proceed.

Speaker 6

Hi, guys. Good afternoon. Thank you. I wanted to ask a question on the outlook and kind of your visibility to it. I'm curious, can you comment on the macro assumptions that Embedded here in the outlook through the second half of this year, just any insights around your current visibility relative to where you typically would be at this point of the year?

Speaker 6

And I guess how much in that 2023 outlook is so signed versus a qualified pipeline or where you have to go get still? Thanks.

Speaker 4

Yes. Thanks, Brian. I mean, we take a look. I mean, it is as we look at Q2 and then like you mentioned, the second half, We look at what we have booked right now, we have visibility into. We look at all those dynamics on it.

Speaker 4

We also are taking into account like the current environment, like the behavior that we're seeing with customers. Now if that turns More for the positive? Yes, there could be some upside in that number. But every time that we think that there is going to be Yes, we're hoping that things are going to improve. Like you said, nobody accounted for the Silicon Valley bank collapse, right?

Speaker 4

And I don't think people fully understand that. They were 100% aligned to the enterprise tech space. We are 100% aligned to the enterprise tech space. So yes, we see that. But in terms of that, we look at what we have booked, the conversations that we're having, typically you've seen the cycles where Q2 is Q1, Q3 is pretty even with Q2 and then Q4 really ramps up.

Speaker 4

I think 6 months out is really hard to determine going into Q4 right now. So a lot of what we are providing in terms of our guidance is what we see now because it's very it changes pretty fast, but in the last 5 or 6 months is pretty consistent with the tech market holdback and that hasn't changed. So it's hard to give you, I don't want to say crystal ball, but like here's why I think things will get better, because based on what we've seen right now, the tech market is in a lot of Certainly doubt and a lot of genomics on this.

Speaker 6

Okay. No, understood. Makes complete sense. And then just a follow-up. So the shareholder letter talks about new product capabilities for Priority Engine.

Speaker 6

So I think focus on some integrations with other platforms and related workflows. Can you just kind of tease that out a bit more working on there?

Speaker 4

Yes, absolutely. So we've made some announcements. You'll see a lot of announcements over the next Month and a half to 2 months in terms of what we're doing. Let me give you some feedback on what's going on. A lot of it's focused on, number 1, our tech enabled integrations that will allow our customers to leverage our proprietary first party intent data at the prospect and at the account level, not only within their CRM and Marketing Automation Platform, but within other platforms, whether it's the homegrown platforms, intent providers, ADM platforms that power other sales and marketing campaigns.

Speaker 4

So that's really important for us because it's key to make sure that our customers have access to the data that we supply, the proprietary data, whether it's in their own whether it's in the Priority Engine platform, Whether it's in their CRM or if they have other platforms that power programmatic or nurturing campaigns or XYZ And working with our customers as well as some of the partners throughout the community is really important for us. We're also going to be releasing features that will improve Priority Engine is a direct workflow tool, including enhanced e mail alerts that will help our sales and marketing have very specific and relevant and real time information about how they can action against. For example, being able to alert the marketing and sales team at XYZ organization was on your website, not only on your website today, but what pages they were on your website. So on the marketer side, They can then trigger within their workflows, whether it's in their own marketing automation or through another platform, ways to target those organizations with the appropriate message. Also being able to alert sales reps to say, again, Very unique at the individual prospect level that this new member of the buying team became an active prospect On the technology initiative that you sell and that is in your respective territory, To be able to promote that to our push that out and that information out to sales reps provides them a very tangible, Easy and laid out timely action to engage and personalize your outreach, whether it's sales or on the marketing side.

Speaker 4

We've talked about in the past and we'll roll this out as well and announce this, our tighter sales force integration Within our customers' CRM around Salesforce, Customer Marketing Automation with 5 directional data analysis and workflows. Why we bring this up is because we want to make sure that we are tied to the opportunity data. And we can identify Investments, the TechTarget Investments show TechTarget Investments that we've identified prior to the opportunity becoming an opportunity in our customer sales force. So we've identified it. And then post opportunity creation date, how have we accelerated That opportunity right in front of our customer sales and marketing departments.

Speaker 4

So those are really key. And then one last thing, which I'm really excited for, again, this is Again, both for marketing and sales users, we'll be updating and enhancing our visualization around account activity dashboards and timelines. It's really important that we can show our customers the investments they've made with a TechTarget of working. So So when you have a look back on a visualization platform, this is in the last 9 months, here is how your investments in TechTarget have engaged With buyers, how we've identified the buyers and how to progress the buyers right in front of them, which again will allow Our customers to trigger the most actionable and relevant next steps is really important, something we've been working on for quite some time and we'll be announcing that. As you can see, our product investments enable customers a) to leverage the data across any and all their platforms that they use to go to market, Increase the usage and reliance with sales and marketing to see results and to show attribution and ROI.

Speaker 4

Those are the three focus areas that we are Really honing in on our priority and our platform investments.

Speaker 6

Okay. Appreciate all the detail on that. Just a follow-up on it. Are you At a point where you're able to, on the other side of this, leverage the investments you've made here potentially into next year from a margin standpoint?

Speaker 4

Yes. Our goal on that is to make the investments now, turn it down Everybody's getting impacts, some worse than others that we've seen, put the right investments in around the product, the content strategy and a couple of other key areas. It was this market turns which we all know that the enterprise B2B tech market in the long term is going to be a strong market that still has the thesis of Modernizing their sales and marketing departments, leveraging 1st party data, leveraging other data sets as well and they get more effective for sales and marketing departments. This will help with our long term growth, margin expansion and what we've been talking about for the last 5 years. Okay.

Speaker 6

Thank you.

Speaker 1

Thank you.

Operator

Thank you. The next question comes from the line of Bruce Goldfarb of Lake Street Capital Markets. You may proceed.

Speaker 7

Hi. Thanks for taking my call. Just a question like in the shareholder letter, You highlighted strategic investments. So there are certain technologies or areas that you have like a sort of a shopping list for that you're kind of targeting?

Speaker 4

In terms of investments, on the last question we just Discussed at length was the investments we're making into the Priority Engine platform and capabilities around integrations, Around UCH, around tracking about ROI. That's one of them, Bruce. We're also seeing some investment. We're making some concentrated investments around our content and So in the business, we've seen and we've seen throughout the market that today's buyer, Enterprise B2B technology buyer wants to spend less time working and dealing with sales reps and vendors Tracking those buyers, but then helping our customers put an effective and thoughtful content strategy together through our investments with ESG, Brightalk as well as TechTarget and leveraging some of the information we talked about around our AI capabilities To help accelerate our customers who have access to the most relevant content that will engage with buyers at the right time is really the case, because Vendors that do not have a content strategy, an effective and thoughtful content strategy will miss out on this because the buyers of technology Do not want to rely on technology reps vendors. They want to have information on their time.

Speaker 4

And then I would just say in the other investments that we look at, we're always looking at can you guys hear me? Yes. Okay. And the other investments that we're making is we're always evaluating our M and A capabilities and our M and A prospects across the content, data and technology enabled audience Yes. So we're going to continue to work on that.

Speaker 7

Great. Thank you. And then how would you compare like Same customer sales metrics, same sort of sales basis for this year versus last year?

Speaker 4

What we do is we disclose that on an annual basis. So that was in our February numbers and we will report on makes February as well. So we do it on an annual basis.

Speaker 7

Great. Thank you. Those are all my questions.

Speaker 1

Welcome.

Operator

Thank you. The next question comes from the line of Kash Rangan of Goldman Sachs, you may proceed.

Speaker 8

Hey, guys. This is Jacob on for Kash. Thanks for taking the question. I'm a little late To the parties, I apologize if this was touched on already. One thing I wanted to touch on was as generative AI has become a lot more topical and the use cases have become a lot more apparent and seemingly widespread, right?

Speaker 8

I mean, we saw a check down Like 50% the other day. Are there other implications around TuckTarget? I mean like Are you working to implement it into your product offering? And then how are you viewing it as something of a competitive Differentiator or something that might close the moat of what TechTarget offers. Can you provide any color around that?

Speaker 4

Yes, absolutely, Jake. Yes, we had brought this up early, but I have No problem. I'm re addressing this. In terms of AI, we've been leveraging AI in our workflow and our investments over the course of several years. And we see Publishers of relevant thoughtful content and originators of content actually have a competitive advantage in this market right now.

Speaker 4

There are other, We'll say content providers that are more sites that might be put bait anglers and trying to get more paid views and traffic. That's really not our Okay. And we believe that publishers have spent years on investment in quality and thoughtful Content to attract a very engaged, relevant and recent audience that can then extract very powerful and proprietary first party purchase and tenant sites Have a huge competitive advantage over other companies in this space. So on that side, We feel very competitive. Now leveraging those 1st party purchase intent and our proprietary purchase intent insights We'll absolutely help our customers in terms of what we're embedding or going to be rolling out announcing that a little inside of our products.

Speaker 4

So for example, we have always relied or been at the mercy of our customers to follow-up, make sure they're leveraging our data, Making sure that everything is being done and that's hard when you hand that off. To be able to leverage our first party insights and then Provide a recipe, very specific recipe and trigger action items to say, Mr. Salesup and Mrs. Salesup, you need to communicate with this Brian, team member, whose insights are this, their entry point to this, they're trying to address this pain point And you have the information to do that. It's going to be really relevant because technology buyers, they're smart.

Speaker 4

They're spending I should say 7, 8 figures on these purchases. They want relevant insightful information and they want really good outreach In terms of when vendors are outreaching to make sure they understand their pain points, their needs and to address that. We have that data. Now to make sure that we're actioning that data and putting on our customers' workflow, that's going to be beneficial. The other thing that's going to be able to help is help accelerate our Content enablement services.

Speaker 4

Our customers need to have a content strategy on the marketing side, product marketing, bill marketing and to be able to take the insights that we have, help power and help generate more content that's going to be personalized Specific targets to the technology buying teams at scale is very it's critical for on our side and for our customers.

Speaker 8

Okay. I guess just a quick follow-up though. From my perspective, if a customer can Maybe more easily generate their own unique content using generative AI and associated technologies. Does that sort of phase out the area of business that TechTarget offers that service in? Like how should we be thinking about that if that makes sense?

Speaker 4

Yes. For the customers, customers are not publishers of content. It's been an hour to be in technology. So we they don't have the insights into $29,000,000 opt in Maybe professionals who are looking at the most deep, broad and relevant content around 100 specific market segments, When we also marry up the vendor content, the peer to peer content, our Bright Talk community that has all the engagement don't have access to that. And I'll tell you, you can't fool technology buyers.

Speaker 4

It's got to be relevant. It's got to be real. It's going to be trusted. So buyers want trusted sources of content. We have a great reputation on that.

Speaker 4

So again, I'm going to go back to my original statement. Strategic publishers and content providers that really serve and invest in thoughtful and independent content will be served well in this space.

Operator

Thank you. There are currently no additional questions registered at this time. So that will conclude our time of question and answer as well as today's call. Thank you for participating. You will now disconnect your lines.

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