TechTarget, Inc. (NASDAQ:TTGT) Q1 2024 Earnings Call Transcript

TechTarget, Inc. (NASDAQ:TTGT) Q1 2024 Earnings Call Transcript May 11, 2024

TechTarget, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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. [Operator Instructions] And I would now like to pass the conference over to your host, Charles Rennick with the General Counsel. You may proceed.

Charles Rennick: Thank you, Cameron, and good afternoon, everyone. The speakers joining us here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our Chief Executive Officer; and Dan Noreck, 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 have posted our shareholder letter on the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials with the SEC, free of charge, at SEC’s website at www.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. Any statements made today by TechTarget that are not factual, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent periodic reports on Forms 10-Q and 10-K. These statements speak only as of the date of this call, and TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law.

Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most comparable GAAP measures, to the extent available without unreasonable efforts, accompanies our shareholder letter. And with that, I’ll turn the call over to Greg.

Greg Strakosch: Great. Thank you, Charlie. On January 10, we entered into a definitive agreement with Informa to combine TechTarget with Informa Tech’s digital business. The combined company will have increased scale with over 8,000 customers in over 20 countries, first-party purchase intent data from over 220 leading digital brands and a permission audience of over 50 million people. The combination increases our TAM by 10x 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 2024. The combination creates a company with a strong financial profile.

We expect 2024 pro forma revenues to be over $500 million. Within 5 years, we expect revenue to grow to over $1 billion 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 first quarter, 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 million and $59 million, which represents a 12% sequential increase from Q1 and roughly flat year-over-year.

We see that as support for a stabilized business with some signs of a return to normal seasonality. This reflects the macro technology environment, which customers remain cautious regarding the 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 2025 and 2026, 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.

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Q&A Session

Operator: [Operator Instructions] And the first question is from the line of Justin Patterson with KeyBanc.

Miles Jakubiak: This is Miles Jakubiak on for Justin. Just to start, would love to get an update on what you’re seeing with the macro environment. You touched on it a little bit with kind of the transition from R&D spend to S&M spend, but maybe just touch on any updates you’re seeing there and any change to visibility.

Mike Cotoia: Thanks, Miles. In terms of the macro, nothing has really changed over the last several quarters. We 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’ve managed through several pullbacks. 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 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 first full quarter. Customers have been able to leverage our IntentMail AI which we’ve seen a great retention, increase in usage from sales users in our platform that are leveraging our prospect-level intelligence for e-mail 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. So we’re seeing healthy adoption on that, retention, competitive usage, repetitive usage. And our road map on that is going to continue to expand the future 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, high inflation. But we know a couple of things to be true, that 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. And as you can see in our Q1 results and our Q2 forecast, we feel we’re doing the right things to navigate through this challenging macro.

Miles Jakubiak: That’s helpful. And then maybe just building off that last point about investments in the 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.

Mike Cotoia: Yes, great. As I mentioned, IntentMail, which is our generative AI offering, is 1 full quarter into use. We’ve had a big focus on integrations, integrations in our customer CRM, marketing automation platforms. But over the last 6 to 9 months and beyond, we 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. We have announced some partnerships, and we’re going to continue to announce some strategic partnerships throughout Q2, Q3, and Q4. And we’re working with partners that have a, that we are focused on a share of like a critical mass of joint customers.

And our customers are looking to get the benefits from TechTarget’s first-party data, doing leverage 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 road map.

Operator: The next question is from the line of Bhavin Shah with Deutsche Bank.

Bhavin Shah: Just kind of on that last point in terms of product improvements just on IntentMail and Priority Engine, kind of when do we think about that kind of helping translate over to kind of improvement in the long-term revenue as that kind of continues to lag overall total revenue growth?

Mike Cotoia: Yes, that’s a great question, Bhavin. So the investments we’re making now and again, IntentMail being one of them, I’ll get into some of road map around Priority Engine, which will help support the question you just asked. 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. So on the IntentMail, that’s 1 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 things like SalesLoft and Outreach.

In organizations like that, you want to have access to prospect-level intelligence as part of their SDR or BDR cadence of outreaching to customers. So again, integrations, personalized data, prospect-level data creates stickiness, more engagement and more usage. On the integration strategy, I explained what we’re doing on that end. And in terms of the priority and road map, 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 insight and visibility to the updated visualizations of how the overall programs are doing versus being siloed into an 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 2024 about the road map and the overall Priority Engine platform and capability strategy.

Bhavin Shah: Got it, that’s helpful there. And just 1 follow-up, a little bit more macro-related, but it looks like your top 10 largest kind of legacy customer base, 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 can notice the difference?