TechTarget, Inc. (NASDAQ:TTGT) Q3 2023 Earnings Call Transcript

TechTarget, Inc. (NASDAQ:TTGT) Q3 2023 Earnings Call Transcript November 8, 2023

TechTarget, Inc. misses on earnings expectations. Reported EPS is $0.06176 EPS, expectations were $0.39.

Operator: Good afternoon. Thank you for attending the TechTarget Reports Third Quarter 2023 Conference Call and Webcast. My name is Alexis and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call. There’s an opportunity for questions-and-answers at the end. I would now like to pass the conference over to Charles Rennick. You may proceed.

Charles Rennick: Thank you, Alexis, and good afternoon, everyone. Joining me here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our CEO; and Dan Noreck, our CFO. Before turning the call over to Greg, I’d 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’ve posted our shareholder letter on the Investor Relations section of our website and furnished it on an 8-K. Following Greg’s introductory remarks, the management team will be available to answer your 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 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. 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.

Greg Strakosch: Great. Thank you, Charlie. As stated last quarter, we feel like we are bouncing along the bottom of the sales cycle. While we haven’t seen material signs of improvement yet, we also haven’t seen material cycles suggest further deterioration is on the horizon. We excited our guidance range for Q3 and are maintaining our 2023 full year guidance. We are pleased that an extremely difficult year in the technology market, we expect to produce 30% adjusted EBITDA line. Our philosophy is to use our leadership position and strong balance sheet during the downturn to prepare for a future recovery in demand through investments in the value we provide to our technology buyers and our product offering for our customers. Our experience tells that these investments will be rewarded when spending returns to more normalized levels. I will now open the call to questions.

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Q&A Session

Operator: Absolutely. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Justin Patterson with KeyBanc. You may proceed.

Justin Patterson: Hi. Great. Thank you very much. I wanted to tease out a little bit more about the just road map of additional product improvements. You noted that you’ve significantly increased R&D investments over the past two years. As we head into a macro that isn’t necessarily getting worse but hasn’t necessarily thought out. How should we think about just the micro level growth vectors these product initiatives that potential for reigniting revenue growth into next year? Thank you.

Mike Cotoia: Great. Thanks, Justin. As we’ve said throughout the year, as we’ve navigated this choppy environment, it’s really important for us to put the right investments against the right priorities. And under those key investments around our product as well as our content strategy but I’ll focus on the product side. When we announced the July launch of our updated Priority Engine, we added some key focus areas. One of it was our Salesforce sync and integration so that we can get our first-party data aligned with our customers’ first-party data, as well as being able to sync and leverage the data with any third-party platforms that they are choosing. And that’s really important because that creates stickiness, that creates better uses of our data and that was something that we didn’t have before.

When we look at that in the long-term road map because we eventually will see an uptick in the market, the more that we can get our data in front of our customers and as part of that July release that we had, which also shows our account journey visualizations, which can highlight and show attribution in terms of what our customers are spending with us and how that’s impacting their – and how that’s a positive ROI on their marketing and sales spend. That’s a positive thing. I want put a short-term when the market is down but when the market comes back there’s going to be a keen eye towards quality of data, quality of investment and ROI against every marketing and dollar spend. We just released as you saw in the announcement yesterday, our IntentMail AI.

So this is part of our personalized assist AI-driven product strategy. We see a really strong competitive advantage when it comes to generative AI types of road maps and technologies and offerings because of our prospect level opt-in level of intent insights. So we know that sellers need to spend more time selling and they need to be laser-focused on personalized engagement to buying team members. So when we launched IntentMail AI, our focus is on three areas: relevancy, efficiency and precision focus that will enable our customers’ sellers to be able to personalize their outreach based on leveraging TechTarget’s proprietary first-party profit level intelligence for more effectiveness, efficiency and ultimately for goals to generate more pipeline and close more business.

Those investments that we’re making today are pertinent not only for today and tomorrow but when the market picks up because we want to make sure we’re putting ourselves in the best position to capture that upside.

Justin Patterson: Thank you.

Operator: Thank you for your question. The next question comes from the line of Bhavin Shah with Deutsche Bank. You may proceed.

Bhavin Shah: Great. Thanks for taking my question and nice to see the stabilization in the demand environment. Can you just elaborate on what you’re seeing just with your customers both existing and new customers. Are existing customers changing their buying behavior upon renewals, down selling, expanding and kind of invoicing behavior, are they self-thinking on the longer-term contracts? Any more insight there would be appreciated.

Mike Cotoia: Yes. Thanks, Bhavin. Customer – I would say the customer behavior – existing customer and even prospect behavior very consistent with what we reported in August. I think it’s no surprise that every – most enterprise B2B technology companies are navigating through a very uncertain environment. We’re still seeing cost cutting. We’re seeing customers really trying to streamline their expense, their headcount. And so that also changes kind of the mindset in terms of when they and how they purchase. We’ve seen a great six, seven years run towards building the long-term contracts on the long-term revenue. And very similar like as we entered into COVID periods well, this is a pullback, where I think a lot of our customers are trying to navigate on a short-term quarterly viewpoint.

And so, when I look at what we’ve done as an organization over the past three-plus years, that’s important in terms of some of the acquisitions we made in the depth and breadth of our product offerings, because we want to make sure that we’re aligned with our customers being able to engage with those folks. If they can’t commit to long-term deals, how do we talk to them? How do we get in front of them and provide value? Through our ESG and BrightTALK acquisition it might be around content and position and strategy in terms of, how they want to position their products in their company. We have the opportunity to pivot and talk about top of funnel, mid funnel, lower-end funnel, confirmed projects, contextualized brand when it plays and customers are and there’s still a lot of customers that are signing up for long-term deals, just not as much as they were pre-pullback.

We want to talk about our first-party level intent at the prospect at the account level to priority engine. So we are pivoting with our customers. We’re staying engaged as they navigate, and we want to make sure that we’re in the best position through some of these investments we are making for when the overall market picks up, we’re going to be able to see it across all of our products and our long-term revenue strategy.

Bhavin Shah: Super helpful. Just one follow-up on IntentMail AI. Can you just talk about the opportunity to monetize that over time? Is that something, you’re going to look to do? And then just in terms of the impact to the margin profile of the business, that would be appreciated. Thank you so much

Mike Cotoia: Yes, I’ll start with the second question. The beauty of — we made some investments on our product development and engineering staff and we’ve been very consistent with that, throughout Q2 really a lot in Q3 and even heading into Q4. But as this gets ramped up, we’re leveraging the same intent that we’ve always had that delivers any of the products that we do, whether it’s our lead Demand Gen, that’s driven by Intent, Priority Engine, qualified sales opportunities. So the margin profile will stay very consistent. And when the market goes up, you’ll see expanded margins on that. On the second part of that question I — in terms of the real focus right now for us, and I think with a lot of our customers is about retention and usage.

We want to make sure that our customers have a reason to engage, with our platform understand the data that we’re delivering and get more sales usage in there. As you saw in the press release, we had 35 big customers with 500 reps leveraging it. You saw the feedback in the press release, that was launched earlier. And our goal is to expand that and make that GA generally, available to all customers using Priority Engine at the end of the quarter. So getting our customers entrenched, increasing their usage, going back to our July launch and being able to visualize what they’re seeing, and being able to get our data in the workflows that they’re using whether it’s through sales or marketing, all part of the grand scheme of what we’re building for the long time.

Bhavin Shah: Great. Thanks for taking my questions.

Operator: Thank you for your question. The next question comes from the line of Bryan Bergin with TD Cowen. You may proceed.

Q – Zachary Ajzenman: Hi. Thanks. This is Zach Ajzenman on for Brian. First question on Priority Engine just kind of a follow-up on the renewals question. So renewals usually overweighted towards the end of the calendar year. So just trying to get a feel for what your sense is on the upcoming, renewal cycle for Priority Engine and what assumptions are embedded in the 4Q view? Does the IntentMail AI going GA potentially offset, some of the broader headwinds here into year-end?