TechTarget Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 6 speakers on the call.

Operator

Good afternoon. Thank you for attending today's TechTarget Reports Second Quarter 2024 Conference Call and Webcast. My name is Jalen. I'll 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.

Operator

I would now like to pass the conference over to our host, Charlie Renick. Charlie, you may proceed.

Speaker 1

Thank you, Jayla, 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 call over to Greg, we would like to remind everyone on the call of our earnings release process. As previously announced, in order to provide you with an update on our business in advance of the call, we posted our shareholder letter on the Investor Relations section of our website and furnished it on an 8 ks. You can also find these materials at the SEC free of charge at the SEC's website at www.sec.gov.

Speaker 1

A corresponding webcast as well as a replay of this conference call will be made available on the Investor Relations section of our website. Following Greg's introductory remarks, the management team will be available to answer questions. Any statements made today by TechTarget that are not factual, including during the Q 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 statements.

Speaker 1

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 Form 10 Q 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. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. The reconciliation of certain of these non GAAP financial measures to the most comparable GAAP measures to the extent available without unreasonable effort accompanies our shareholder letter. And with that, I'll turn the call over to Craig.

Speaker 1

Great. Thank you, Charlie. We are pleased to report strong performance for the Q2 of 2024 with revenue exceeding our target and increasing 14% sequentially and 1% year over year. As we noted in our Q1 shareholder letter, customers continue to be cautious about their budgets and this ongoing pressure and uncertainty surrounding high interest rates, inflation, international tensions and the upcoming presidential election. This trend continued in the Q2 as technology vendors implemented additional discretionary expense reductions, layoffs and other cost cutting measures.

Speaker 1

In our experience, investors reward technology companies for revenue growth and low interest rate environment, which in turn incentivizes technology vendors to invest in sales and marketing. We continue to make meaningful progress across our business and are confident that the investments we are making today and our combination with InformaTech's digital businesses will position TechTarget as a leading comprehensive solution in a growing yet fragmented market and drive continued performance and value for our shareholders, customers, partners and employees. I will now open the call to questions.

Operator

We will now begin our question and answer session. Our first question comes from Justin Patterson with the company KeyBanc. Justin, your line is now open.

Speaker 2

Great. Thank you very much. Good afternoon. Could you talk first just on the macro side, some of the trends you're starting to see in Q3. How's the environment changed versus what you saw over the course of Q2?

Speaker 2

And then secondarily, could you also elaborate more on the opportunity around Tech Target Market Monitor and how you're going

Speaker 1

to market there? Thank you.

Speaker 3

Great. Justin, this is Mike. In terms of macro trends, Q3 versus Q2, I'd say it's very similar in terms of what we've experienced really over the last 4 quarters, continued interest rates being high, inflation as Greg mentioned in the shareholder letter, international tensions and then we have an upcoming presidential election. None of these are catalysts to really explode and help out the market. In terms of how we're navigating through this, I think we've done a really good job in terms of our product development, our product portfolio, how we engage with accounts, product offerings and our value proposition that can really benefit our customers across their entire go to market strategy from their strategy to content creation and positioning to brand and content all the way to demand and intent.

Speaker 3

We have a lot of different avenues to walk even during a downtime. So when a customer might not be ready to do X, Y, Z, there's an opportunity to drive value through other areas of the business. So I think it's pretty consistent from Q2 to Q3. And in terms of Market Monitor, that was one of our priority engine releases that helps our clients really understand the real time dynamics in the markets that they serve, in the markets that they go after. So that will include the types of account and buying teams that are currently actively researching their respective topics and technologies.

Speaker 3

We can then provide to them the topics that are generating the most interest within those segments, provides competitive and market insights. We can show top performing content and how that resonates. So as you can see that really helps our customers mobilize and focus on the top accounts, top prospects, top customers with the market insights that TechTarget can deliver with their go to market strategy.

Speaker 1

Great. Thank

Speaker 3

you.

Operator

Our next question comes from Joshua Worley with the company Needham. Joshua, your line is now open.

Speaker 4

Great. Thanks for taking my questions. And once again, nice job in a pretty challenging macro environment. So if you look at the layoffs that you've seen across a lot of your customers, a lot of your kind of champions within these customers have been displaced over the last 18 months. Are you seeing any stability in their ability to land positions at new potential customers and bring you guys back into their go to market process?

Speaker 4

Or is there still too much fragmentation and uncertainty with some of these employees getting new positions?

Speaker 3

Yes, Josh. When we see customers that have been impacted by layoffs and so far today we've seen them land in other positions. And typically when that happens, that's a good thing for TechTarget. They bring us in. They understand our value proposition.

Speaker 3

And I don't want to say we're the 1st company they call, but I'm going to guess we're on top of the dial when they make that phone call. So right now, we've seen them get impacted. We've seen them land in new positions and then we've seen them call us and bring us in. So that really hasn't changed over the last few quarters.

Speaker 4

Got it. And then, as you I know you're going to be describing this more at the September Analyst Day, but as you've had some more time to review the assets of InformaTech, maybe just a couple of things, any updated thoughts around the timeline to close the transaction? And then secondarily, any updated thoughts or confidence around the synergies and combined growth trajectory when the deal closes? Thanks guys.

Speaker 3

Yes, no problem. Yes, what I'd say in the combination, we continue to make good progress in the combination. We did file the S-four back in at the end of June timeframe. We're on track. We've scheduled investor morning on September 19.

Speaker 3

And yes, we've gotten to understand the assets of InformaTek, not only assets, the people, the business, how they work in our proposed operating model going forward. We've done a lot of diligence on that on both sides. So we've expanded and laid out a proposed operating model. We looked at the executive team, what we call executive minus 1, executive minus 2. So we've made all the right moves to make sure that we're ready for the close, which we expect to be on time.

Speaker 3

In terms of the synergies, what we stated, we still feel very confident on the numbers that we stated. It was $25,000,000 expense and $20,000,000 in revenue over the course of the couple of years post close, and we still feel very confident in those numbers.

Speaker 4

Great. Thanks, guys.

Operator

Our next question comes from Bruce Godfrope with the company Lake Street Capital Markets. Bruce, your line is now open.

Speaker 5

Thank you. Greg, Michael, congratulations on your results. Thanks for taking my questions. Can you comment on demand trends? What are you seeing in international versus North America?

Speaker 3

Yes. I think you see a little bit of we've been pretty consistent, Bruce, in terms of if you go back to last August, a year ago today, when we had our earnings call, we said that we feel that we're going to be navigating the bottom right now. We hit the bottom, we're going to be navigating through that. And I think that's pretty consistent across the board. What you see in the U.

Speaker 3

S, you also see internationally. You might see some areas, in some regions internationally that might be pinched a little tougher because some companies, a lot of the larger organizations are trying to centralize their budget where they might want to manage everything out of North America and then allocate it to the respective fields, but have access to it in a centralized manner. So I think what we see here in the United States, we see across EMEA as well as APAC. Again, there are some of the APAC regions within APAC, you see some of the consolidation and centralization of projects coming back to the global headquarters. A lot of those companies are based in the U.

Speaker 3

S, but it's fairly consistent across the board.

Speaker 5

Great. Thank you. And then, are you seeing in terms of seasonal trends, are you seeing any signs of a Q4 budget flush? And in the second half of the year, are you seeing any is there a probability we'll see more long term contracts?

Speaker 3

Yes. What I can tell you is that it was good to see when we look at the business, when we see signs of seasonality trends, to us it's a positive sign. So from Q1 to Q2, our revenue grew sequentially 14%. We had a year over year increase of 1% in revenue, but that Q1 to Q2 was again something that we had predicted back in February May when we made or when we laid out the budget. That's a good sign.

Speaker 3

And that historically we see Q1 being the lowest quarter, Q2 having to jump, Q3 off slightly from Q2 and then the ramp up in Q4. So based on what we've seen so far, we like the size in terms of the seasonality, historical trend lines that are coming back into the business. As you recall, we didn't see that last year. It was pretty flat throughout the quarter, roughly $57,000,000 to $58,000,000 every quarter. So those are good size.

Speaker 3

I don't want to predict what we'll see in Q4. Again, we have high interest rates, inflation, international tensions and upcoming presidency. But typically we have seen when interest rates get cut, investors really reward our technology customers around growth. And you see technology companies invest more in sales and marketing. What we're seeing today, what we've seen in the last year and a half, there are a lot of investments from our companies on R and D and that R and D has to turn into ROI.

Speaker 3

And so one of the triggers that we see or one of the catalysts, which historically seen is the cotton interest rate.

Speaker 5

Great. And then in terms of product roadmap, where do you expect to invest post the Informa Tech combination after closing?

Speaker 3

Well, I'll tell you what we're investing in now for TechTarget because it should really change if you gave much. As you saw in Q2, we announced our account intent fees. So that again, it's a priority engine based offering that has continuous stream of our first party account insights into CRM and ABM systems. So this is a separately purchased subscription that plugs into our clients' current workflows. Clients can identify, they can engage and give our target accounts to programmatic and social advertising.

Speaker 3

They do have account prioritization, ATM segmentation and creation and it's really valuable insights for sellers. We also announced a partnership with 6 Sense revenue AI platform for our joint customers. So 6 Sense and TechTarget have a lot of joint customers. It links our account insight fees through a direct integration, right in the success revenue AI platform to easily leverage our first party insights. It actually drives value for both offerings.

Speaker 3

So you can expect to see more integrations around ABM platforms and other types of platforms within that organizations have. The previous, Justin, I remember brought up Market Monitor and what we're seeing in that, have any insights. Again, so this is all offshoot to Priority Engine. In Upway, the roadmap is to consolidate all the offerings into a platform to create unified solution for clients to manage. So as we talked about, we really can help out and we bring value to our customers across their entire go to market strategy.

Speaker 3

From intelligence and advisory with their strategy and their product marketing positioning on the way to brand and content to intent and demand that converts and drives that revenue and that demand for the R and D investments that our customers made. That's going to be very consistent, plan to continue to accelerate those opportunities and making sure we have a unified platform to bring all of our solutions together for our customers to leverage across their go to market.

Speaker 5

Great. Thank you very much. Thanks. Congrats again. Thank you.

Operator

Our next question comes from Bhavan Shaw with the company Deutsche Bank. Bhavan, your line is now open.

Speaker 5

Great. Thanks for taking my questions. The first one, just kind of in the past you guys talked about the opportunity to benefit from the duplication of third party cookies. Now that kind of seems like it's no longer happening from the Google side. Do you have to kind of adjust your go to market messaging or anything kind of as you go forward?

Speaker 3

Yes, Bob, good question. First of all, marketers have been educated over the last couple of years, several years. We got into value of 1st party versus 3rd party. So if anything, Google's sort of caught between a rock and a hard place in terms of what they have to do and what they've been doing with regulators across the EU and across the United States. But across over the last two years, the conversation with marketers, it's really clear that 1st party insights or permission based audience are really the quality and the go to source to drive impact.

Speaker 3

So what I've learned and what we've wrote from Google is that they're going to sort of come in this in between where they're going to have to be very transparent on the options of whether you want to have your cookies tracked and not tracked. And I don't know about you, but I'm going to bet with a lot of those folks that have that option presented right in front of them while they're doing the research, they're going to click now on that. So things may change a little bit, but I think we've actually benefited from the last couple of years of education, what's going on in the market and the value of first party data and permission based audiences.

Speaker 5

That's super helpful. And just a quick follow-up. I know that from the shareholder letter that you guys didn't discuss kind of 2024 guidance. Should we still kind of rely upon that or

Speaker 1

is that no longer valid?

Speaker 3

Yes. Well, we are very confident that we're going to be closing the transaction with InformaTek in early Q4. Therefore, it's really not going to be an actual number that is going to be moving forward. The go forward focus is going to be on the combined companies coming together in Q4 moving forward. So we just thought we don't want to cause confusion in the market on that.

Speaker 3

We want to make sure that that was communicated and focused on our Q3 numbers today.

Speaker 5

Perfect. Thanks for taking my questions.

Speaker 3

Thank you. At this

Operator

time, there are no other questions registered in queue. Thank you for your participation and enjoy the rest of your day.

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