TechTarget - Q2 2024

Transcript

Operator (participant)

Good afternoon. Thank you for attending today's TechTarget Reports Second Quarter 2024 Conference Call and webcast. My name is Jaylen. 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. I would now like to pass the conference over to our host, Charlie Rinick. Charlie, you may proceed.

Charlie Rennick (Head of Investor Relations)

Thank you, Jayla, 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 at the SEC free of charge at the SEC's website at www.sec.gov. 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&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 factor section of our most recent periodic reports on Form 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.

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 letters. With that, I'll turn the call over to Greg.

Greg Strakosch (Executive Chairman)

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

We will now begin our question and answer session at this time. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, it is star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We'll pause briefly here as questions are registered. Our first question comes from Justin Patterson with the company KeyBanc Capital Markets. Justin, your line is now open.

Justin Patterson (Managing Director)

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? And then secondarily, could you also elaborate more on the opportunity around TechTarget Market Monitor and how you're going to market there? Thank you.

Mike Cotoia (CEO)

Great, Justin. This is Mike. In terms of the macro trends, Q3 versus Q2, I'd say it's very similar in terms of what we've experienced really over the last four quarters. Continued interest rates being high, inflation, as Greg mentioned during 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, our product offerings, and our value proposition that can really benefit our customers across their entire go-to-market strategy. From, you know, their strategy to content creation and positioning, to brand and content, all the way to demand and intent.

We have a lot of different avenues to walk into a customer, even during a downtime. So when a customer might not be ready to do XYZ, 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, you know, 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 accounts and buying teams that are currently actively researching, you know, their respective topics and, and technologies. 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.

Justin Patterson (Managing Director)

Great. Thank you.

Operator (participant)

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

Joshua Reilly (Managing Director)

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

Mike Cotoia (CEO)

Yeah, Josh, when we, we see customers that have, you know, been impacted by layoffs, and so far to date, we've seen them land in other positions. And typically, when that happens, that's a, that's a good thing for TechTarget. They bring us in. They understand our value proposition, and I don't want to say we're the first company they call, but I'm gonna guess we're on top of the dial when they make that phone call. So right now, we've seen, 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.

Joshua Reilly (Managing Director)

Got it. And then, you know, as you... I know you're gonna be describing this more at the September analyst day, but as you've had some more time to review the assets of Informa Tech, maybe just a couple 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.

Mike Cotoia (CEO)

Yeah, no problem. Yeah, what I'd say in the combination, we continue to make good progress in the combination. We did file the S4 back in at the end of June timeframe. We're on track. We've scheduled an investor morning on September nineteenth. And yeah, we've gotten to understand the assets of Informa Tech, not only the assets, the people, the business, how they work, you know, in our proposed operating model going forward. We've done a lot of, a lot of diligence on that on both sides. So, you know, we've expanded and laid out a proposed operating model. We've looked at the executive team, what we call executive minus one, executive minus two. So we've made all, you know, the right moves to make sure that we're ready for the close, which we expect to be on time.

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

Joshua Reilly (Managing Director)

Great. Thanks, guys.

Operator (participant)

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

Bruce Goldfarb (Managing Director of Institutional Equities)

Thank you. Greg, Michael, congratulations on your results.

Mike Cotoia (CEO)

Thank you.

Bruce Goldfarb (Managing Director of Institutional Equities)

Thanks for taking my questions. Can you comment on demand trends? What are you seeing international versus North America?

Mike Cotoia (CEO)

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

I think what we see here in the United States, we see across EMEA as well as APAC. Again, there are, you know, in some of the APAC regions within APAC, you see some of the consolidation and centralization of budgets coming back to the global headquarters. A lot of those companies are based in the U.S., but it's fairly consistent across the board.

Bruce Goldfarb (Managing Director of Institutional Equities)

Great. Thank you. And then, are you seeing, in terms of seasonal trends, are you seeing any signs of a Q4 budget flush in-

Mike Cotoia (CEO)

Yeah.

Bruce Goldfarb (Managing Director of Institutional Equities)

The second half of the year, are you, are you seeing any... You know, is, is there probability we'll see more long-term contracts?

Mike Cotoia (CEO)

Yeah, what I can tell you is that it was good to see. You know, 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%, you know, 1% in revenue, but that Q1 to Q2 was, again, something that we had predicted back in February and May when we laid out the budget. That's a good sign. And that's, you know, 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 signs 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, you know, throughout the quarters, roughly $57 million-$58 million every quarter. So those are good signs. 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, you know, typically, we have seen when interest rates get hot, investors really reward, you know, 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&D, and that R&D has to turn into ROI. And so, you know, one of the triggers that we see, or one of the catalysts, we've historically seen, is a cut in interest rates.

Bruce Goldfarb (Managing Director of Institutional Equities)

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

Mike Cotoia (CEO)

Well, I'll tell you what we're investing in now for TechTarget, because it's it should really change and deviate much. As you saw in Q2, we announced our Account Intent Feeds. So there's, again, it's a Priority Engine-based offering that has a 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. And clients can identify, they can engage, and convert target accounts through programmatic and social advertising. They do a lot of account prioritization, ABM segmentation, and creation, and it's really valuable insights for sellers. We also announced a partnership with 6sense Revenue AI platform for our joint customers. So 6sense and TechTarget have a lot of joint customers.

It links our Account Insights Feeds through a direct integration right in the 6sense's Revenue AI platform to easily leverage our first-party insights. It actually drives value for both offerings. You can expect to see more integrations around ABM platforms and other types of platforms within that organizations have. The previous question Justin brought up Market Monitor and what we're seeing in that, having insights. Again, this is all offshoots of Priority Engine. Ultimately, the roadmap is to consolidate all the offerings into a platform to create a unified solution for clients to manage.

So as we talked about, we really can help our customers and we bring value to our customers across their entire go-to-market strategy, from intelligence and advisory with their strategy and their product marketing positioning, all the way to brand and content, to intent and demand that converts and drives that revenue and that demand for the R&D investments that our customers make. That's gonna be very consistent, plan on continuing 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.

Bruce Goldfarb (Managing Director of Institutional Equities)

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

Mike Cotoia (CEO)

Thank you.

Operator (participant)

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

Bhavin Shah (Director of Software Equity Research)

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 deprecation 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?

Mike Cotoia (CEO)

Yeah, you know, Bhavin, good question. First of all, marketers have been educated over the last couple of years, several years, regarding the value of first party versus third party. So if anything, you know, 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 E.U., across the United States. But over the last two years, you know, the conversations with marketers, it's really clear that first-party insights from permission-based audience are really the quality and the go-to source to drive, you know, impact. So what I read and what we read from Google is that they're going to sort of come in this in-between, where they're gonna have to be very transparent on the options of whether you wanna have your cookies tracked or not tracked.

I don't know about you, but I'm gonna bet with a lot of those folks that have that option presented right in front of them while they're doing their research, are gonna click "No" 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.

Bhavin Shah (Director of Software Equity Research)

That's super helpful. And just a quick follow-up, I noticed in the shareholder letter that you guys didn't discuss kind of 2024 guidance. Should we still kind of rely upon that, or is that no longer valid?

Mike Cotoia (CEO)

Yeah, well, we are very confident that we're gonna be closing the transaction with Informa Tech in early Q4. Therefore, it's really not gonna be an actual number that is gonna be, you know, moved, you know, going forward. The go forward focus is gonna be on the combined companies coming together in Q4, moving forward. So, you know, we just felt we didn't wanna cause confusion in the market on that. We wanna make sure that that was communicated and focused on our Q3 numbers today.

Bhavin Shah (Director of Software Equity Research)

Perfect. Thanks for taking my questions.

Mike Cotoia (CEO)

Thank you.

Operator (participant)

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