TechTarget, Inc. (NASDAQ:TTGT) Q4 2023 Earnings Call Transcript

TechTarget, Inc. (NASDAQ:TTGT) Q4 2023 Earnings Call Transcript February 7, 2024

TechTarget, Inc. misses on earnings expectations. Reported EPS is $-6.0E-5 EPS, expectations were $0.38. TTGT 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 Fourth Quarter and Full Year 2023 Financial Results Conference Call. My name is Matt, and I’ll be your moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Charles Rennick, with TechTarget. Charles, please go ahead.

Charles Rennick: Thank you, Matt, 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’ve 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 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 effort, accompanies our shareholder letter. And with that, I’ll turn the call over to Greg.

Greg Strakosch: Great. Thank you, Charlie. Well, the big news since our last earnings call was the announcement we made on January 10. We entered into a definitive agreement with Informa, combining TechTarget with Informa’s tech 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 permissioned audience of over 50 million people. The combination increases our TAM by over 10x as we will enter 18 new vertical markets with a unique end-to-end solution across the go-to market. The combination creates the companies with a strong financial profile, and we expect 2024 pro forma revenues to be over $500 million.

Within 5 years, we expect revenue to grow to over $1 billion in revenue and at least 35% EBITDA margins. We structured the deal so our shareholders will get some immediate benefit by receiving an $11.79 per share in cash and long-term benefit by providing the opportunity for shareholders to participate in the value creation through a 43% stake going forward. In regards to the current environment, we came in slightly ahead of the high end of our Q4 guidance. This reflects the macro technology environment, which customers remain cautious regarding their sales and market investment levels. We expect this dynamic to continue throughout 2024 because of uncertainty surrounding inflation, interest rates, the presidential election and geopolitical issues internationally.

I will now open the call to questions.

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Q&A Session

Operator: [Operator Instructions] The first question is from the line of Jason Kreyer with Craig-Hallum.

Cal Bartyzal: This is Cal Bartyzal on for Jason. First one for me, I was just wondering if you could just talk a little bit on the AI capabilities across TechTarget and Informa, if there’s any kind of differences in approaches between the two companies and how complementary those capabilities can come together.

Mike Cotoia: Great Cal. This is Mike. I’m going to focus on the AI capabilities with TechTarget right now because we’ve been working with generative AI capabilities and road map for the last year plus, so I really want to focus on that. And I see there’s really four areas that we see the benefits of generative AI in creating measurable impact on the business. The first side, I’d say, would be on our product side. In Q4, we launched our IntentMail AI, which is under our Personalize Assist product suite. And what that does is hyper-personalize and auto-generate e-mails or sales reps to leverage for the outreach, sales reps who work for our customers. So what we’re doing in that, it leverages AI to blend TechTarget’s prospect level, purchase intent insights and behavior, along with what we call recent product aligned customer information, to personalize our reps’ outreach.

And what this does, it increases response time, reduces the time to create the e-mails. And as part of that product suite, we also have different entry points or points of interest at the individual prospect level, so a rep can build a cadence that has multiple entry points to engage with a prospect that he or she is targeting. We’ve seen good adoption in terms of reps leveraging that, reducing their time to create e-mails and leveraging the first-party prospect-level intelligence. We’ve also seen internally leveraging across our internal functions within TechTarget. We have a content marketing department whose goal is to help promote customers’ content to our audience and to their prospects. And everything that we do is 100% indexed by topic, by content, we rate the performance, the promotions.

So what we’ve done on that is we’ve built a model that now instead of hiring more junior copywriters, we’re taking on more experienced copywriters, help train the models to help do the promotion and subject lines for the white paper and webinar assets that we want to promote to our customers. So we’ve taken that. We’ve seen success on that. And now we’re evaluating and rolling out gen AI for internal procedures and processes across four or five other different functional areas. I think in terms of member and audience, and clearly better user experience for our members who come to our sites. We’ve built a private LLM driven out of our own content and first-party data, which is all behind the firewalls, to provide what I would call a micro experience, which will be driven by prompt intelligence.

So when a user or a member comes to our sites, we can then prompt them to find out what other information that would be relevant for them, for their research, and then guide them to our knowledge base of content, whether it’s editorial content, vendor content, analyst written content, webinar content, to make sure it’s a better user experience. And as we create a better user experience for our members, we also gain relevant first-party purchase-intent signals. And then I would say, whenever there’s a disruption or an evolution in the market, that benefits TechTarget quite well. We’re celebrating our 25th anniversary we came into the business. We have storage. This big virtualization became a big mover, cloud, now AI. And if you take a look at the content that we produce, we have 1,000 number one rankings around the topic of generative AI.

And vendors and customers need to cut through the noise because there’s a lot of noise on how to leverage it, what are the regulatory concerns, how does it work in enterprise tech, it’s been beneficial and a driver for our TechTarget business. So those are the four areas I would say that we implement it and continue to implement and evolve around the business.

Cal Bartyzal: Perfect. Thanks. And then just last one for me, it looks like the guide implies something like a double-digit decline in Q1 but flat or better for the year. Is there anything that you would call out that’s kind of signaling that you could see spend free up a little bit in the second half?

Mike Cotoia: Yes. So I’d say Q1 is always historically the lowest, and you align this to the technology market. Q1 is always the smallest revenue quarter for the year. It now aligns with the technology market. When you see Q4 to Q1, over the history of our business, it’s typically between 10% and 13% decline from Q4 to Q1 and we predict in between 9% and 10%. I think, as we mentioned in the shareholder letter, there are not a lot of big catalysts in the market right now. We’ve seen the high interest rates, the inflation. We have geopolitical situations going on, and we have an upcoming election. But what we also are seeing is our customers are spending a lot of money in R&D. And there’s always going to be a pent-up demand when that shift goes from cost cutting to growth because there will be a pent-up demand for technology as well as for marketing and sales, typically a flight back to quality.

And we’ve seen this through several downturns over the course of 25 years. And we’re seeing some, again, very consistent with our November call, like pretty stable and no surprises right now. So as we’ve seen that stabilize versus last year going into Q1, we saw a big dip. We saw some signs that the market stabilized a little bit and when the pent-up demand is there. There’ll be a flight back to quality, and we’re putting ourselves in the best position to take advantage of that flight back to quality and focus on the recovery.