Blackstone Q1 2024 Earnings Call Transcript

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May 9, 2024

There are 7 speakers on the call.

Operator

Good afternoon. 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 the presentation 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, R.

Operator

O. S. Running with the General Counsel. You may proceed.

Speaker 1

Thank you, Cameron, and good afternoon, everyone. The speakers joining us here today are Greg Strykosch, our Executive Chairman Mike Cotoia, our Chief Executive Officer and Dan Norg, our Chief Financial Officer. Before turning the

Speaker 2

call over to Greg, we

Speaker 1

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 ks. You can also find these materials with the SEC free of charge at the SEC's website atwww.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.

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 most recent periodic reports on Forms 10Q and 10 ks. 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.

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 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.

Speaker 1

On January 10, we entered into a definitive agreement with Informa to combine tech target with Informa Tech's digital business. The combined company will have increased scale with over 8,000 customers in over 20 countries. 1st party purchase intent data from over 220 leading digital brands and a permissioned audience of over 50,000,000 people. The combination increases our TAM by 10 times as we will enter 18 new vertical markets with the unique end to end solution across our clients go to market. We've been pleased with the progress we have made over the past 4 months and we are on track to have this transaction closed during the second half of twenty twenty four.

Speaker 1

The combination creates a company with a strong financial profile. We expect 2024 pro form a revenues to be over $500,000,000 Within 5 years, we expect revenue to grow to over $1,000,000,000 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 Q1, 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 to be in the range of $57,000,000 to $59,000,000 which represents a 12% sequential increase from Q1 and roughly flat year over year.

Speaker 1

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 20252026, which is good timing as the combined company will have additional scale to take advantage of the recovery. I will now open the call to questions.

Operator

Perfect. We will now begin the question and answer And the first question is from the line of Justin Patterson with KeyBanc. You may proceed.

Speaker 3

Hi, thanks for taking the question. This is Myles Jakubiak on for Justin. 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 and D spend to S and M spend, but maybe just touch on any updates you're seeing there and any change to visibility?

Speaker 4

Great. Thanks, Myles. In terms of the macro, nothing has really changed over the last several quarters. You 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 we have an upcoming presidential election. But I'd say we've been in business, we're going to be celebrating our 25th anniversary this year being in business and we managed through several pullbacks.

Speaker 4

And 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, enterprise B2B marketing and sales services for our customer. So even though 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 front in terms of leveraging some of our AI functionality and capabilities. It's our 1st full quarter that customers have been able to leverage our intent mail dotai, which we've seen a great retention, increasing usage from sales users that are in our platform that are leveraging our prospect level intelligence for email outreach and automation, again based on our prospect level intelligence and we combine it with our customers' most recent and most relevant product marketing positioning.

Speaker 4

So we're seeing healthy adoption on that, retention, competitive usage, and our roadmap on that is going to continue to expand the features to work with multi email sequences and integrations into sales engagement platforms. So continuing around the platform and making sure we're making the right investments, as we mentioned in the shareholder letter and in Greg's opening, 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. The tech market will return, interest rates are low and there'll be a recovery. So making sure we're making the right investments today to capture that recovery.

Speaker 4

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

Speaker 3

That's helpful. Thank you. And then maybe just building off that last point, about investments into product. It seems like there's some upcoming improvements to Priority Engine and maybe a little bit more focus on the direct integration side. So just would love to hear about how you think about current product priorities as you kind of invest through the cycle?

Speaker 3

Thank you.

Speaker 4

Yes, great. As I mentioned, the Tenmail, which is our generative AI offering is 1 full quarter under use. We've had a big focus on integrations, integrations into our customer CRM, marketing automation platforms. But over the last 6 to 9 months and beyond, we've really made a concentrated effort of integrating our Priority Engine information and data into other technology platforms. We reallocated and invested in internal resources to help support customers who want to integrate Priority Engine data into existing workflows within other platforms.

Speaker 4

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 that we are focused on a share of a critical mass of joint customers. And our customers are looking to get the benefits from TechTarget's 1st priority 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 with where we are with this and we're pleased with the roadmap.

Speaker 3

Thanks, Mike. Appreciate it.

Operator

The next question is from the line of Bhavan Shah with Deutsche Bank. You may proceed.

Speaker 1

Great. Thanks for taking my question. Just kind of

Speaker 2

on that last point in terms

Speaker 1

of progress improvements just on the intent mail and Priority Engine. When do we think about that kind

Speaker 2

of helping translate over to kind of improvement in the long term revenue as that kind of continues to

Speaker 1

lag overall total revenue growth?

Speaker 4

That's a great question, Bob. And so the investments we're making now and again intent may be a one, but I'll get into some of our roadmap around Priority Engine, which will help support the question you just asked. Look, it's really important for us on 2 fronts. Getting our customers to continue to use and be 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 when we look at it some good progress against both of those areas.

Speaker 4

So on the intent mail, that's one version of our personal assist product family. There's other avenues that we're looking to do in terms of expanding those features to work with, as I mentioned, multi email sequences and integrations with sales engagement platforms. So think like SalesLoft and Outreach and organizations like that, that want to have access to Prospect Level Intelligence as part of their SDR or BDR cadence of outreach into customers. So again, integrations, personalized data, prospect level data creates stickiness, more engagement and more usage. Our new integration strategy, I explained what we're doing on that end.

Speaker 4

And in terms of the Priority Engine roadmap, we have a very large initiative that we're evolving the platform to incorporate other TechTarget offerings into a more into a common user experience. So that will be driven by a unified visualization of program impact, action intent based insights to support program decision making and the ability to identify and take action with active buying teams. So if you look at this, it's more about getting the end to end solution offerings from content to demand, to brand, all inside a unified platform, so customers can have access and insights and visibility to the updated visualizations of how their overall programs are doing versus being siloed into a intent offering only. So that those are 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 twenty twenty four about the roadmap and the overall Priority Engine platform and capability strategy.

Speaker 2

Got it. That's helpful there. And just one follow-up, a little bit more macro related, but it looks like your top 10 largest kind of legacy customer base that 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 kind of notice a difference?

Speaker 4

Yes. I'll say on the enterprise accounts, we talked about over the last several quarters, some of the key acquisitions and investments we made with Enterprise Strategy Group, Right Talk and Xpeligent to create this end to end go to market strategy and product offering to help our customers. So in terms of enterprise accounts, we have more entry points now with our product portfolio position and our capability set to getting there from research, intelligence and advisory to creating strategic content to put into programs and then activate against the right accounts. And so we're actually seeing a great momentum in terms of penetrating different budget stakeholders across the entire go to market strategy. And that's that makes a lot of sense in terms of the larger the count, the more pockets and the more and that we can get involved in.

Speaker 4

In terms of the smaller accounts, I think this market is absolutely putting some headwinds against the smaller accounts. But again, I go back to our product offerings that we have today versus that we had 2 years ago, where we have different area points and different entry points to drive value for our customers. And what I mean by that, if a customer in an SMB or smaller account isn't ready to do intent or leverage a priority engine subscription, they might have a need for lower end of the funnel confirmed projects. They might need some help with their positioning. So we leverage the ESG capabilities with our Bright Talk studios and our content creation.

Speaker 4

They might want to do demand over a quarter versus a year as they navigate through this environment. Again, it's only been 14 months since the collapse of Silicon Valley Bank. A lot of these smaller accounts are looking to right size their budgets, make sure they're managing expenses and they're looking for true value propositions to meet their, whether it's content, whether it's their brand position, demand or intent. So we feel we're in a pretty good position in terms of engaging and providing value for those SMB customers as well.

Speaker 2

Thanks so much and appreciate taking my question.

Operator

The next question is from the line of Joshua Riley with Needham. You may proceed.

Speaker 5

Yes. Thanks for taking my questions. So as we're looking at the June quarter guidance here, I believe typically, historically, you guys have talked about how some new product releases by your customers can drive the typical seasonality with a sequential increase in revenues. Just wanted to understand is that what the normal seasonality, is that what is driving the improved revenues? Or is there some other maybe factor at play there that we should be aware of?

Speaker 4

I think it's 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 work with customers who might not be ready to do annual or multi year deals, they still need to help support their sales targets, pipeline, revenue forecast. And as we've said before, even in a down market, when that market recovers, there's going be a flight back to quality and that quality is going to be driven by 1st party purchase intent data and permission based audiences. But our conversations with those customers that started in the middle of last year, we said we're starting to see some normalization or some things starting to stabilize is really understanding how we can serve their needs based on what our customers are really focused on today. That's paying off right now.

Speaker 4

So as we landed as we came into 2024, the portfolio was well architected, well positioned and being able to like accommodate what our customers' needs, again, whether it's around content strategy or brands at the million to 1 10, to load yet, bottom of the funnel 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 and we're running a multiple betaearly adopter program around account insights, Steve. So it's a new priority engine offering that was announced. That really won't have any revenue impact in Q2. But it's a different use case from our prospect level Priority Engine offerings.

Speaker 4

This new offering is accounting sites only. It will be used for our customers against their programmatic ABM initiatives and propensity scoring. So again, I go back and say 1st party data is where the gold is. And not only at the prospect level, but also at the account level. And we believe with the future of Google announcing that they are the duplication of third party cookies, and they're looking to sunset that now in 2025, we're creating 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.

Speaker 4

So that's what we were focused on. But in terms of the June revenue, I mean, we guided to this projected this 2 quarters ago and said we expect Q1 to be down around 10%, Q1 will be Q2 will be closing the gap, Q3 will be relatively up and in Q4, we see an increase in the revenue year over year. So we're on track with what we've laid out and We're pleased with the performance of the business.

Speaker 5

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

Speaker 5

Thanks guys.

Speaker 4

Yes. Thanks, Josh. So again, we plan for the we plan to make the right investments to help the business scale and to drive margin expansion. So some areas that we've done this year is we've currently implemented a workflow management solution. So it provides end to end visibility from our contract to execution to close to billing.

Speaker 4

And we feel that this is the right investment, so we can streamline the visibility and the information across all of our product fulfillment sets, our sales, our sales operation teams and our customer success teams. So we're in the middle of implementing a workflow solution on that. We expanded 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.

Speaker 4

We made the right investments on that. So you see a little bit of cost on that, but at the end that will make a cost of sales and scale more efficient and continue to help expand margins.

Speaker 5

Got it. Thanks, guys.

Operator

The next question is from the line of Bruce Goldfarb with Lake Street Capital Markets. You may proceed.

Speaker 6

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?

Speaker 4

Bruce, yes, we expect that to be in the low to mid-30s. When we talk about 24 with the pullback and the continued macro environment, That's why like when we look at this combination that we're doing, we just feel like this is the absolute right time to be doing this. And when you take a look at what we evaluate when we acquire or do evaluate different assets, we look at a few things. We look at audience and we look at permission based audiences. We look at 1st party insights and as we predicted last couple of years and going into 2025, 1st party purchase intent insights are going to be a premium.

Speaker 4

We look at content and content capability. Those are driving more revenue on the long term contracts and look for penetration into new tech enabled vertical markets. So we take a look at the assets and the quality assets that we are merging with InformaTech's digital business around industry guys and around Onvia in the 70 special digital media brands in that line. The MBA business, which is around the intelligence, research and advisory combined with our Enterprise Strategy Group business, if you take a look at the MBA business, about 65% of their revenues are in the long term contracts. So really important now, the timing is right now to get all these assets, quality assets together, combined, integrated and be ready for the recovery.

Speaker 4

So yes, we might be in the low to mid-30s this year, but our 3 to 5 year plan is to have revenue over 50% on the long term revenue contracts.

Speaker 6

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

Speaker 4

No, we haven't got any inbound customers inbound to us on this. I mean, we're working right now. As we mentioned in the shareholder letter and I think Greg's introduction, 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.

Speaker 4

So which we are still scheduled to have complete in the second half 2024, but we haven't heard directly from Informa Tech customers reaching out to us.

Speaker 2

Thank you. And then I

Speaker 6

saw like you weren't active on buyback during the quarter. Are you likely quiet until after the InformaTech transaction closes?

Speaker 4

Yes. I think we're going to be fairly quiet. Yes, we're going to be pretty quiet on that. I think that expires the end of November 2024 anyway.

Speaker 6

Great. Well, it's coming up anyway. Thank you. Thanks for taking my questions and congrats on the results.

Speaker 4

Thank you.

Operator

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.

Speaker 4

No other questions, no closing remarks. We appreciate everybody joining and talk to you next quarter. Thank you everyone.

Operator

That concludes the TechTarget Reports Q1 2024 conference call and webcast.

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