TechTarget Q2 2023 Earnings Call Transcript

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August 8, 2023

There are 9 speakers on the call.

Operator

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.

Speaker 1

Thank you, Kate, and good afternoon. Joining me here today are Greg Straykosch, our Executive Chairman Mike Ottoya, our Chief Executive Officer and Dan Norek, 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 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 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 our filings with the 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.

Speaker 1

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. Thank you, Charlie. We are pleased that we hit our Q2 2023 forecast Despite the continued macro weakness in the technology markets during the quarter.

Speaker 1

While it's 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 take advantage of these sound 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.

Operator

Absolutely. We will now begin the question and answer session. We will pause momentarily to compile the roster. The first question will be from the line of Justin Patterson with KeyBanc. Your line is now open.

Speaker 2

Great. Thank you very much, and good afternoon. Greg and team, I just wanted to tease out that point you just left on. As you mentioned, Long time TechTarget shareholders, I know that you view downturns as an opportunity to really reposition the business. So as we come out of this downturn, how should we think about Just the pace of growth for TechTarget, especially if you lean into these categories like AI that you teased out in the letter a little bit.

Speaker 2

And then second question, I 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 sides of things just Not getting as bad anymore. Thank you.

Speaker 3

Great. Yes, 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 of double digit growth. So there's a lot of areas that we're really focused on during the 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 and 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.

Speaker 3

As we noted in the letter, we don't Seeing 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 3, 4, 5 quarters for companies to navigate through this, but at one point, they're going to need to feed their pipeline. It is typically a flight back to quality around 1st party data, prospect level intelligence, market alignment and proximity. And That's not really a matter of what's 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.

Speaker 2

Thank you.

Operator

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

Speaker 4

Hi. This is Rob Morelli on for Josh. With the cycle incrementally challenging, how should we think about trends in the second half of the year, given the normal Ali, it will be a 10% sequential increase in revenue from Q3 to Q4. Is that seasonality still in place?

Speaker 3

Yes. Well, I think as we look at it and you take a look at the current macro conditions, 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 reaffirm this year of $25,000,000 to 30 $225,000,000 to $230,000,000 in revenue with $65,000,000 to $70,000,000 in EBITDA. I don't think you guys see any major swings In terms of Q3 to Q4, I think you will 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 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.

Speaker 3

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 in line with what we had on the analyst side And plugging 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.

Speaker 4

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. How would you position the tech target product set in terms of use cases for new customer acquisition Versus upselling existing customers and engaging retention. Thanks.

Speaker 3

Yes. What I'd say on that is, I think in this type of math, when we talk to customers, New business cases and net new logos is always a challenge because 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 3 things that will bear fruit on that. Number 1, There will be a flight back to net new logo acquisition.

Speaker 3

2, there's always going to be land and expand, protect your existing customers. And I believe 3, 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 our line to the product innovation and to our alignment to our markets and to our prospect level intelligence, We think we checked 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 in 2024.

Speaker 4

Got it. Thank you.

Operator

Thank you. The next question will be from the line of Bhavan Shah with Deutsche Bank. Your line is now open.

Speaker 5

Great. Thanks for taking my questions. Just kind of following up on what you saw kind of play after the quarter and

Speaker 2

what you're seeing today.

Speaker 5

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. And then even from a customer kind of cohort perspective, larger customers versus smaller customers, Any kind

Speaker 1

of difference you've seen in

Speaker 5

terms of improvement stabilization that will be helpful.

Speaker 3

Sure. So Bob, on July 20, we announced one of our largest Launches on Priority Engineered 3 or 4 key areas that we really wanted to focus on. Number 1 was our sales force integration with our new sales force Connected. What we're really focused on that, we've talked about this in previous earnings calls, was enabling our customers to really leverage their own first party data And align it with TechTarget's 1st party account and prospect level data, but also allow our customers who are using 3rd 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.

Speaker 3

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 can Should focus on based on their activity. So that's been a pretty big enhancement for us. We also did launch a new UI, UI 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.

Speaker 3

They can view contacts now and identify contacts who have actually viewed their marketing The other thing that we launched was our account journey visualization. It's been really Key for us. We want to show how the account is engaging across the TechTarget network. What buyers are researching? When are they researching?

Speaker 3

When do they become a lead? And also the sales reps within our clients, how and when and 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.

Speaker 3

So it's all about attribution, visualization and holding everybody accountable. That was a really big launch. And then we updated our new opportunity dashboard. We want to make sure that we are getting as much 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 can 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 And how are we accelerating them from opportunity creation date to closed won 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.

Speaker 3

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 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 1, 2 year Priority ends in subscription, but they have a need around content strategy, about positioning their product, Showing an economic validation of why they should choose a technology buyer should choose their solution.

Speaker 3

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, Well, we've relaunched and updated our whole FastPass reg with one click to register based on the information we know about Prospects from our customers database that have already opted in and permission based, we walk into our branding elements, our content marketing elements, Demand generation elements. So now when 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 Point with some of our strategic accounts, those larger accounts and we talked about this last quarter, how we revamped the sales organization, We created pods that we have in ESG, which is our content enablement services, opportunity and capability set, a BrightTalk and a TechTarget, all in Kate within these accounts, so that they are bringing that end to end capability set, but entering where the customer needs or I have a demand, a pain point or a value that they need.

Speaker 3

So we're seeing some signs on that. I think as somebody else mentioned in 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 can turn 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.

Speaker 5

Super insightful in detail. 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.

Speaker 3

Yes, that's a great question. So I mean, When you look at Gen AI, you got to look at the market that we serve. And we get a lot of questions around generative AI. In the markets and the constituents we serve are the technology buyer and Technology buyer side, we've all seen the demographics of that buyer is driving towards the millennial stage buyer, wants Really deep and cycled content. There was a Harvard Business Review study that came up at the end of 2022 that's in millennials.

Speaker 3

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 TechTarget. It's because of our market alignment, our content that we serve up, we dominate in 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 strategic Strategy on this is when customers go to Google, which we continue to dominate and come to TechTarget 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.

Speaker 3

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, they 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 target 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.

Speaker 3

Then we can share about Content from our Bright Talk 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 in the flip side, It drives more engagement, more insights and more capabilities for us to productize to our customers at the end.

Speaker 2

Great. Thanks for

Speaker 3

taking my questions.

Operator

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

Speaker 6

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?

Speaker 6

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.

Speaker 3

Yes. We don't We don't disclose what we have contractually committed. But Brian, here's what I can tell you is, we've seen through the conversations with Sales teams with our customers, our customer success teams, the conversations feel like they are like where we stated in the shareholder letter. There's more of a stabilization. As you saw at the beginning of the year, there's a little bit of a free fall.

Speaker 3

People didn't know. There were still layoffs going on and there's cost cutting, 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 I want to sign, as I mentioned earlier, a 1 or a 2 or 3 year deal. But now we have a reason to engage around, again, around messaging, around Creating leads, increasing your database, even branding activities. So we're seeing that. I would say, we don't disclose it, but we've Trend in bookings too.

Speaker 3

We've seen deals that have if you looked in the past quarter where they may have committed, we had a certain percentage in our Salesforce forecasting that's pulled back. We're seeing some of those or a lot more of those On the 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 of trending, cautiously optimistic.

Speaker 5

Okay. Okay. That's good to hear.

Speaker 6

And then as it relates to maybe free cash flow and capital allocation, just first off, anything to be mindful of on free cash flow, maybe conversion off of EBITDA for 2nd half. And as you generate cash flow, can you just give us a sense on capital allocation priorities, how you're feeling about M and A appetite here, just given that large cash position Versus more active share repo deployment?

Speaker 1

Yes. So no real change in strategy. We're looking at M and A opportunities. And as we say in shareholder letter, we're looking at share buybacks and potential debt buybacks. So we'll continue to be opportunistic on both fronts there.

Speaker 5

Thanks.

Operator

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

Speaker 7

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

Speaker 3

Thanks, Bruce.

Speaker 7

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

Speaker 3

Well, I would say we don't break it down, but I'd say Bruce, that's 4.5 months also. There's still some repercussions going on to that. What I would tell you is, we haven't run-in any cash collection issues that we report on that. We're still engaged in conversations. They are.

Speaker 3

Some of those accounts are good a lot 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 as we continue to navigate this slow 4, 4.5 months since the March collapse on that, Our conversations are about that. But what do you need to do? What do you need to accomplish?

Speaker 3

What do you need right now? And how can we help you? And then here's the Products that not everything might fit to 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, I think, 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.

Speaker 3

It's 4 plus months since the March 8th date.

Speaker 7

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

Speaker 3

I don't want to answer it right now. If you ask me Today, 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 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

Speaker 7

And then have you seen any change in your search rankings with the arrival of AI assisted search like chat GPT.

Speaker 3

Yes. We see it as surge rankings continue to grow. I'll say we have a we dominate in enterprise B2B tech. Our search traffic to our enterprise AI site was up by 120 Sean, if you type in Gen AI or Generive AI or what is Gen AI or what is Generive TikTok is ranked number 1. We have a lot of articles.

Speaker 3

I don't know the exact, but it's 100 that are ranked, not organically. So we continue to do really well on that. Google and Microsoft Bing will continue to drive Research is to trusted and sourced communities and publishers and that's a really key differentiator from what we offer.

Speaker 7

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 at current prices, current stock price?

Speaker 3

Yes. I mean, we're going to like

Speaker 1

I said, we're going to continue to be opportunistic and that's been our track record. And so I wouldn't I expect to continue to pay the course on that strategy.

Speaker 7

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

Speaker 3

Thanks Bruce.

Operator

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

Speaker 8

Hey guys, this is Jacob on for Kash. 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 Demas, 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?

Speaker 8

Does that mean potential risks? And Anything around that might be really helpful.

Speaker 3

Jacob, as you're probably well aware, we made a few acquisitions over the last couple of years. And so they're on Steroid 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 3 different sales force instances. We integrated that into 1. We're looking at other workflow management tools and solutions.

Speaker 3

The way we deliver our To our customers or way we capture it, we're streamlining that, which then we can take some of those resources and reallocate into other projects Our priorities, we don't plan a ramp. We plan on making sure we believe we're at the right headcount. We plan on Driving the most, 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.

Speaker 8

Awesome. Thank you so much.

Operator

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

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