TechTarget Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

Key Takeaways

  • In January TechTarget entered into a definitive agreement to combine with Informa’s tech digital business, creating a combined company with over 8,000 customers, a 50 million-person permissioned audience, and access to 1st-party purchase intent data from 220 brands.
  • The merger increases TechTarget’s TAM over tenfold, adds 18 new verticals, and targets pro forma revenues above $500 million in 2024, with a roadmap to exceed $1 billion in revenue and 35% EBITDA margins within five years.
  • TechTarget finished Q4 slightly ahead of guidance despite a cautious macro technology environment characterized by inflation, interest rate uncertainty, the presidential election, and geopolitical tensions, and expects a typical 9–10% revenue decline from Q4 to Q1 before a recovery.
  • Over the last year TechTarget has embedded generative AI across product and operations, including launching Intent Mail AI for hyper-personalized sales outreach, training internal copywriters with AI for content marketing, and building a private LLM to enrich member experience and capture additional intent signals.
  • Organic traffic grew 14% year-over-year off a strong 2022 base, and TechTarget notes that vendor-side layoffs have not materially impacted its 100% permissioned audience used for lead generation and buyer intelligence.
AI Generated. May Contain Errors.
Earnings Conference Call
TechTarget Q4 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good afternoon. Thank you for attending the TechTarget Reports 4th Quarter and Full Year 2023 Financial Results Conference Call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. I would now like to pass the conference over to our host Charles Rennick with TechTarget.

Operator

Charles, please go ahead.

Speaker 1

Thank you, Matt, and good afternoon, everyone. Speakers joining us here today are Greg Strykosch, our Executive Chairman Mike Ottoya, our Chief Executive Officer and Dan Norek, 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 ks. You can also find these materials with 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, included 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.

Speaker 1

Forward looking statements involve a number of risks and uncertainties, including those discussed in the Risk 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 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 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. With that, I'll turn the call over to Greg.

Speaker 1

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, the combined tech target with Informa's tech 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.

Speaker 1

The combination increases our TAM by over 10 times as we will enter 18 new vertical markets with a unique end to end solution across the go to market. The combination creates companies with a strong Financial profile. We expect 2024 pro form a revenues to

Speaker 2

be over

Speaker 1

$500,000,000 Within 5 years, we expect revenue to grow to over $1,000,000,000 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 a 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.

Speaker 1

I will now open the call to questions.

Operator

The first question is from the line of Jason Kreyer with Craig Hallum. Your line is now open.

Speaker 3

Great. This is Cal Bardugo on for Jason. First one for me, I

Speaker 2

was just wondering if you

Speaker 3

could just talk a little bit on the AI capabilities across TechTarget and Informa, if there's any kind of differences and approaches between the companies and how complementary those capabilities can come together?

Speaker 4

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 roadmap for the last year plus. I really want to focus on that. And I see there's really 4 areas that we are where we see the benefits of generative AI and creating measurable impact for the business. On the first side, I'd say it will be on our product side.

Speaker 4

In Q4, we launched our Intent Mail AI, which is under our personal assist product suite. And what that does is hyper personalized and auto generate emails for sales reps to leverage for the outreach, sales reps who work for our customers. So what we're doing that, it leverages AI to blend tech targets, prospect level, purchase intent insights and behavior along with what we call recent product line customer information to personalize a rep's outreach. And what this does, it increases response time, reduces the time to create the emails. And as part of their product suite, we also have Different entry points or points of interest at the individual prospect level.

Speaker 4

So a rep can build a cadence It has multiple entry points to engage with a prospect that they are he or she is targeting. We see a good adoption in terms of reps leveraging that, reducing their time to creating emails and leveraging the 1st party prospect level intelligence. We also see it internally, Leveraging across our internal functions within TechTarget. We have a content marketing department His 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.

Speaker 4

So what we've done is we've built a model that now instead of hiring more junior copywriters, We're taking our more experienced coffee writers, help train the models to help through the promotions 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 saw that and now we're evaluating and rolling out GenAI for internal control, for internal procedures and processes across 4 or 5 other different functional areas. I think in terms of member and audience and creating a 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 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 created better user experience for our members, we also gain relevant first party person intent signals.

Speaker 4

And then I would say whenever there's a disruptive or an evolution in the market That benefits that target quite well. We've seen that we're celebrating our 25th anniversary. We came into the business, Storage is big, virtualization became a big move on cloud, now AI. And if you take a look at the content that we produce, we have A thousand 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?

Speaker 4

How does it work in enterprise tech? That has always been a beneficial and a driver for our target business. Those are the 4 areas I would say that we implemented and continue to implement and evolve around the business.

Speaker 3

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?

Speaker 4

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 the year and analyze the technology market. When you see Q4 to Q1 over the history of our business, typically between 10% and 13% decline from Q4 to Q1, we don't predict them between 9% and 10%. I think it's still, as we mentioned in the shareholder letter, There are not a lot of big catalysts in the market right now.

Speaker 4

We've seen the high interest rates, the inflation. We have a 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 and D And there's always going to be a pent up demand when that shift from goes from cost cutting to growth because there will be a pent up demand for technology as well as for marketing and sales, typically it's right 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.

Speaker 4

So as we've seen that stabilize versus last year going into Q1, we saw a big dip. This is some signs that the market is stabilizing a little bit and when the pent up demand is there, there will be a flight back to quality and are putting ourselves in the best position to take advantage of that flight back to quality and focus on the recovery.

Speaker 3

Perfect. Thank you so much.

Operator

Thank you for your question. Next question is from the line of Kunal Madhukar with UBS. Line is now open.

Speaker 5

Hi, thank you for taking my questions. A couple if I could. One is on the Permissioned audience. So what percentage of your traffic in any given month is permissioned audience? And how much of the permissioned audience have you kind of maybe lost because of all the layoffs.

Speaker 5

That's 1. 2nd is with regard to the guide, wanted to understand Seasonality and what's going into your guide in terms of the 1Q that you're doing exquisitely And the 4Q, what are the Q over Q over Q trends in revenue that you're kind of anticipating? Thank you.

Speaker 4

Okay. I'm going to talk about on the permission based audience side. I would reflect that to our organic traffic. And so we saw an increase of 14% year over year of organic traffic, Mal, and that's actually coming off a That's actually coming off a high watermark for 2022, Q4 and 2022 where we saw 51% growth the previous year. So in terms of audience and permission based audience, whenever we run a program for our customers in terms of Lead gen or delivering them, prospect level intelligence, 100% of our audience is permission based.

Speaker 4

In terms of the layoffs, We're seeing the layoffs are at the vendor side, not necessarily at the buying team side. So the announcement that you see Continuously throughout 2023 and even into Q1 of 2024, our tech vendors doing a lot of layoffs around sales and marketing because of their numbers and their demand that they have and that doesn't really impact what we see in terms of the traffic of the permission based audience. On your second question in terms of seasonality, I think about historically what we've seen and you go back into our financials for the last 16 years, 17 years of being public is that Q1 is typically the smallest revenue quarter. Vendors are not done finalizing their budgets. A lot of the vendors are at year end, are December year end.

Speaker 4

So budgets might not get finalized until February or March. So and in terms of their world, that's typically the lowest revenue quarter. In Q2, it ramps up. You see a lot of product releases updates being presented by customers, you'll see them at more trade shows in April May. Q3 levels off with Q2 typically, you have some of the summer months, especially in Europe where people are taking vacations.

Speaker 4

And then Q4 is typically your largest revenue quarter, both for us at Target, but that directly in line with the enterprise tech market as well. So We're starting to see some signs where that's coming back slowly in terms of those patterns. And that's what we're focused on in terms of our investments and the opportunity to get back to.

Speaker 6

Thank you.

Operator

Thank you for your question. Next question is from the line of Justin Patterson with KeyBanc. Your line is now open.

Speaker 7

Great. Thank you and good afternoon. 2, if I can. 1st, just going back to guidance. When you think about just

Operator

kind of a

Speaker 7

bit of recovery over the course of the year. Is that driven primarily by customer growth within there? Or are you making some assumptions in terms of Just pricing impacts around Priority Engine and the rest. So that's question number 1. And then question number 2, just philosophically, The product portfolio you have today is very different than what you've had in the past coming out of downturns, whether it's ESG Or even just the BrightTALK asset.

Speaker 7

So as you kind of look at the tech targets that exist today, how do you think a recovery might And enterprise recovery might differ today versus what you've seen in the past. Thanks.

Speaker 4

Great. Justin, I'm going to start with your second question first You bring up a good point. The product portfolio, Tay, is much different than it was 3 years ago, 5 years ago, even 2 years ago. And that's been part of our strategic roadmap. It's very important and what we've been very conscious about is making sure whether it's through our organic capabilities and launches on our product side or through acquisitions, we want to be the premier provider help our customers with their end to end go to market strategy.

Speaker 4

So when the recovery comes back, you're going to have customers that are going to increase their Demand all around content marketing, any really relevant content to talk about their technical or the economic validation and positioning within the market to engage with the right buyers. So now getting into that end to end go to market strategy earlier with not only the ESG capabilities, but the Bright Talk capabilities to a multimedia format, making sure we can do this through webinar. Multimedia format, making sure we can do this through webinars, we can do this through PDF, we can do this through Infographics to make sure that we're helping our customers earlier in their go to market stage, then being able to take that content and put those into very effective programs that will be delivered and put in front of prospect level prospect and buying teams Yet we know who they are, we know their permission base, we know everything that they're looking at and then being able to capture all that intent to deliver both of the sales and the marketing organizations to help them prioritize not only accounts, but the individual prospects within those accounts. So combining that together and then being able to plug into the healthcare vertical with Xtelligent and create additional peripheral content, That's been really important for us and that's a big focus.

Speaker 4

So when you have an opportunity to play in the whole end to end go to market strategy for a vendor, yourself in a really good position. In terms of your first question, how we see the modest growth, I think it's a combination. So like we reported, the number of customer count was down and that reflected in terms pretty close to The decline in revenue for this year. We started seeing the overall revenue per customer leveled up was actually up a little bit. And I think it's a combination between, yes, there will be some customers that are coming back to net new.

Speaker 4

I think there's some pricing capabilities that we have on our I also did some new products that we'll be launching as part of our roadmap with Priority Engine, some extensions of what we're doing And having some of these regions that may have been consolidated into a global spend for North America, if the market starts picking up I'll be later in the second half, there's more budget being allocated to field marketing. We mentioned in the last two earnings calls, whenever we see a pullback, Why just get centralized? We tend to take them out of the regions. They want to centralize them typically in the U. S, then they allocate some dollars on that.

Speaker 4

Well, the reasons you have numbers to hit 2, they have sales, they have field marketers down there. So between, yes, customer increasing customer count, Some pricing in new product solutions, that's the first that we see for 2024 and more importantly to 2025 beyond.

Speaker 7

Great. Thank you very much.

Operator

Thank you for your question. Next question is from the line of Josh Riley with Needham. Your line is now open.

Speaker 2

Hi, this is Rob Morelli on for John. Just taking the question. Regarding the acquisition of Informa, 2025 pro form a model Seems about 500 basis points of EBITDA improvement year over year, often the combined company assuming a linear progression profit Should we expect the margin progression is linear over the next few years? And can you just touch on some of the key items

Speaker 4

Okay. So you're a little broken up on that. I think you're talking about the margin over the years. And we say as we TechTarget had a really good history of making sure that we manage our margins. And when you have a $500,000,000 if you look at the numbers and it's a pro form a $500,000,000 going into 2025 And the ability to take on revenue growth, which we have shown improvement in over the history of our time, We have a greater than 50% incremental EBITDA margin.

Speaker 4

It's a lot of that revenue ends up falling to the bottom line. So we'll be able to expand the margins on that side. Getting into the real key on this, there's a lot of growth through cross selling and upselling our platforms into new customers. Also, if you take a look at the 2 businesses when they combine, there are over 8,000 customers that we have an opportunity both cross sell and up sell the solutions that we have respectively to get a deeper footprint into existing customers. In terms of the Ombia business, which I can't really comment on them, that's a new part of mine, but it really does Align with our strategy that we're talking about getting into our customers earlier to help them with their end to end go to market strategy.

Speaker 4

So pure revenue growth Driving 50% plus incremental EBITDA margins, if you do the math over the 5 years, you get to your 35% EBITDA margin, that won't be in year 1, that gets over the period of several years for the growth and the opportunities that we have.

Speaker 2

Got it. That's helpful. And then regarding some of the products coming from Informa, Industry Dive raised some nice diversification from an industry perspective, While Omnia is solely focused on the tech industry, does it make sense to bring some of Industry Dives 20 verticals into the business model of Omnia given So pure subscription and expand their business coverage beyond tech verticals?

Speaker 4

Yes. I cannot comment on the Informa business and each of their divisions on it. What I can comment on is what our strategy has been and has been publicly announced About getting into adjacent markets, making sure we have our content enablement services, making sure we have an end to end solution and having the platform to reach across All the opportunities include adjacent markets. So that being said, that's been a vision that we stated pretty clearly around Permission based audience, 1st party insights in a comprehensive end to end go to market strategy. And so when we have the combination, we'll be able to When that's finalized, it's signed.

Speaker 4

We'll be able to dive into that a little bit more with the public.

Speaker 2

Got it. Thanks for the color.

Operator

Thank you for your question. Next question is from the line of Andrew Maroc with Raymond James. Your line is now open.

Speaker 6

Great. Thanks for taking my question. Wanted to dig in on the customer count a little bit. So that decline Seems like it accelerated in 4Q, it was down 100 in 3Q, down about 300 in 4Q. What do you think is the floor here?

Speaker 6

And I guess To the extent that you know, how much of the decline over the course of 2023 is kind of involuntary like companies going out of business versus voluntary cutbacks?

Speaker 4

So I would say the decline, if you look at the overall decline throughout the year, You have a lot of customers that may have signed annual deals in 20 22. And it was the second half of 22, really in Q3 when we started seeing some of the declines. So you didn't have a lot of folks, a lot of organizations Sign up for annual deals going into Q4 of 2022. That's when the market started to send signals that it was slowing down. That's why one of the reasons why Q4 was a little bit higher.

Speaker 4

People that signed the annual deals in up to May, June, July That expired, they were dealing with the macro, they pulled back. In terms of voluntary or involuntary, you got to understand, there's a couple of things. We're less than 1 year out from the Silicon Valley Bank collapse and they are 100% focused on Technology company. So some of those companies went away. A lot of those companies are still in business, but they are navigating through the environment they have to make sure they are managing their costs very closely.

Speaker 4

So as the market picks up, as we talked about, and the demand picks up, which it will, it's not a matter of if, it's a matter of when, A lot of those companies will come back. Also during the customer count, and I mentioned this earlier, you might have an organization That spending in North America, EMEA and APAC. And the APAC region may have cut back and EMEA may have cut back, but North America was still going. That would decrease our customer count based on those regionals that we treat as separate businesses because we're working on separate contracts and agreements. When the market comes back, you typically see that centralized budget flush back into the field.

Speaker 4

So That's the color that I can give you. I can also tell you if you look at the total customer panel, the revenue, I think the overall revenue for our customers actually up slightly in 2023 versus 2022. So it's and again, it's another sign we talked about in November, we're saying now No major surprises right now. And this is what we're seeing right now and navigating it. And we don't see things fall off and we don't see big catalyst Sprucing up right now in the first half of twenty twenty four.

Speaker 6

Really appreciate the And one more if I could. I mean, I understand that it's very early days right now and this may not even be that much of a client facing effort at this point, but has there been any meaningful feedback from your clients So far in terms of the reaction to the announcement of the Informa deal?

Speaker 4

No, not really. I mean, We're not really allowed to discuss, but we're really focused on business as usual here and making sure we're doing the right things for the business. But Listen, I will tell you this. From my own view, I think it's a pretty like when we talk about our M and A strategy for the last 3 years, I want to get this a really big high get it factor and that's again from my own point of view. We talked about our strategy of driving our 1st party purchase intent data, permission based audience and content.

Speaker 4

And so we've been very clear over the last few years and also getting into adjacent markets. So we've been discussing this publicly for the last couple of years as part of our roadmap strategy. And This is the announcement that was in front of everyone and they can interpret it how they want it, but we can't really share what we hear for feedback.

Speaker 6

Okay. Really appreciate it. Thank you for the color.

Operator

Thank you for your question. Next question is from the line of Bruce Goldfarb with Lake Street. Your line is now open.

Speaker 8

Hi, thanks for taking my call my questions. With Google Chrome's new treatment of cookies, have you seen any increased lift in budget from long time customers allocating More to attack target spend versus legacy cookie driven spend?

Speaker 4

So As we all know, Google announced the phasing out of cookies starting in January and accelerating that throughout the end of the year. It was just announced in terms of them putting that into action, definitely part of our playbook. I mean, we are all first party data, both at the prospect level and as well as at the account level. We're going to take advantage of that in terms of our go to market strategy and making sure that customers and we believe and even part of some of our product strategy, which you'll see us announce in Q1 will be at the end of Q1 will be account only insights. Yet remember, Most of our customers have always bought prospect level intelligence from us and we've identified the accounts that those prospects work in.

Speaker 4

You have a lot of accounts that buy a lot of our customers also want modeling, propensity modeling, ABM strategies with account only information. So as part of our roadmap strategy and our product launches, you're going to see some announcements around our account insight needs, which will be at the account level only And tying that into our 1st party data versus Google phasing out third party cookies, we see that as a pretty big competitive advantage.

Speaker 8

Thank you. And then post, I don't know if you can answer this, but post InformaTek combination, should we expect The new Board Chairman would be elected from the post close directors or could it be a new director?

Speaker 4

I mean, it could be a new director.

Speaker 1

Could be, okay.

Speaker 8

And then lastly, when do you expect demand in the legacy business to stop contracting? Do you think like Q3, Q2 or Q3 or Q4? Yes.

Speaker 4

I mean, like you said, I mean, if numbers in the guidance we gave this year are relatively flat up 2%. Heading into 2024, we still have on the tech industry, on the enterprise B2B tech industry, we still have high inflation, high interest rates and a lot of layoffs That's okay to get settled. What I do know on this is we've seen pullbacks before and we've seen customers who spent a lot of money, invested a lot of money in R and D. We also see technology initiatives such as AI and seen it with virtualization and cloud and other things before that create a pent up demand. And it's not a matter of if, it's a matter of when the market turns around, where customers turn from, Hey, I get to watch everything I do on costs.

Speaker 4

So I really need to focus on growth through sales and marketing efforts regionally and globally. And when that turns and I wish I had a crystal ball on that, I mean, we've seen some signs like I mentioned a lot of couple of quarters, some stabilization. When that turns, there will be a quick recovery in my opinion, and we've seen that in the past. And when we see that recovery and whether that's Q3, 24, Q4, 2024 or the beginning of 2025, our goal is to be ready for that recovery to take the upside in that. And that's As you can see some of the investments we've made, the announcements that we've made, that is a real focus for us right now.

Speaker 8

Great. Thank you.

Operator

Thank you for your question. There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.

Powered by Quartr