Q4 2019 Earnings Call

Gaap measures accompanies our shareholder letter with that. I'll turn the call over to Greg right? Thank you Charlie. We had a very strong for capping off the most successful year in the companies twenty year history. We have successfully transition the business from selling quarterly marketing campaigns.

To establishing ourselves as the leading provider of purchase intent data that IP vendors have integrated into their work flow to power their sales and marketing Outreach. This chance position has resulted in Tech Target and join office revenues profit margins and cash flow for Q4 2019 Revenue grew 13% to 35.9 million dollars adjusted ebitda off 1% to 11.8 million dollars adjusted ebitda. Margin was 33% versus 26% in Q4 18 priority engine revenues grew 25% long-term contracts represented 35% of Revenue in Q4 nineteen up from 33% in Q4 18.

For the full year 2019 Revenue group 10% to $134 adjusted ebit. I grew 39% to 41.9 million dollars wage adjusted ebitda margin was 31% in 2019 versus 25% in 2018. Gross margin was 76% same as last year with incremental ebitda margin was 92% in 2019 and adjusted free cash flow is thirty-two million dollars representing 76% of adjusted ebitda.

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Was a breakthrough year for the company and we have good momentum going into 2020 our 2020 priorities are to continue to improve our product offerings have a successful launch of high of an Express and to continue to expand margins. I will now open the call to questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone for using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question comes from Aaron Kessler from Raymond James, please go ahead great. Thanks guys. Maybe just I think you referenced in the script kind of the your vast majority is kind of first-party cookies. Maybe just expand on that kind of any kind of exposure to third-party cookies. It doesn't seem like much at all, and then secondly, just how should we think about kind of incremental ebitda margins in 2020 here maybe seems like a little less versus 2019 Odyssey 2019 is a great year from incremental ebitda margin Prestige. It's maybe just talk a little bit about some of the Investments you're thinking around 2020 as well. Thank you.

right

In terms of the Google and the third party they announce that they're going to be facing away from cookies and so vendors outside of tech Target and publishes that report you on third party data pools are going to have a challenge We Believe over the next year and half to two years as Google continues to face that out. That's one of the reasons why we built a dog what I would call a competitive Advantage by owning and operating our sights not Outsourcing to third-party cookies a third-party wage, you know, cooking pools and really focused on our first party data, we do have some Revenue it's a very immaterial amount of Revenue that's derived from leveraging some of those third-party outside network box. But if you take a look at our overall Revenue in terms of how we recognize, you know around brand and demand and are integrated programs fifteen percent of our overall. Revenue was attributed. Yep.

branding products, which is primarily online advertising that we

Online branding through are owned and operated sites in a very small portion of that relates to you know, come from outside the network. So we feel when a pretty good position on that front and we don't use a third-party cookies for our purchase intent data all the purchase intent data is first party.

Got it. Great. I mean find yours. I can come out of margins. Yeah, and your second question throughout 2019. We we invested a lot of effort in in terms of in terms of engine. So we were able to capitalize a little bit more in a software development piece. You know, we also had some one-time tax gains throughout the year and I really generalize 2019. It was a year that everything that could go right would continue to go right went right for us. So, you know, that's great to have we are focussing our investments in dog twenty-twenty continued focus on the priority engine platform and really focusing on a lot of the sales use cases that we're seeing a customer tab. So we want to work on integration for Salesforce want to make sure we're investing on the product so we can show better attribution within the within our customers Salesforce database and we want

want to make sure that we can

Need some enhanced products to make the product extremely extremely easy for sales teams to use. Um, we're going to also continue to invest in our customers access teams through technology and people so we can manage and monitor and track the success that our customers they have and with engagement within priority engine cuz that's very important to be able to track that down and that continues to take investment again both on the people's side as well as on the technology side. And you know, if you look back historically we've we've typically guided too and projected and forecasted, you know fifty percent plus incremental even on margin we're going to continue to do that. I hope that we continue to beat and exceed that but that's consistent with you know, historical levels off.

Great. Thank you guys come back. Thank you.

The next question comes from Eric Martin from Lake Street, please. Go ahead.

Yeah, I had a question about the 2020 Revenue Outlook. Obviously we're the guidance comes out to about 10% on the top line. I wanted to get your perspective on you know, what could what could cause that to maybe come up short, you know, if we wind up at 8% when all is said and done and then take me two more rose-colored glasses scenario where maybe it's twelve thirteen percent growth in twenty-twenty. What press out a little bit further in both directions for me if you would

Sure.

I think you know where tightly aligned to it spending. So we very line our business is very aligned to the Enterprise it spending in the market Thursday. We obviously grew the business our Revenue growth exceeded. You know, the it spending projections in 2019. And if I T spending continues to grow and do extremely well your budgets for our customers will continue to grow and do well and they want to capture more market share and drive more revenue and hit a new targets that'll be very positive for us. And on the line that I am positive for us is the adoption and implementation of a, you know priority engine Express into that SMB Market as a recall. That's the lower end product of priority engine. We sell em typically about one-third price of the average price for priority engine standard subscription models. We feel that there's a big opportunity in the SMB mark

No on the flip side.

If I you know, the it spanning declines or there's a pullback in it or there's you know, massive trade Wars or tabs that always has a macro impact and has an impact on us because it has an impact on our customers. So, you know Greg. Is there anything else going out? And then there's one more thing I would add on the upside is our customers are in the early Innings of this major transition to becoming data-driven sales and marketing organizations and our customers are in the process of optimizing their systems and their processes to take advantage of this purchase intent Thursday. And we've seen customers that have done this well have outside Roi and we've seen them really increase their investment in our data and that's why we've made such a big investment in our customer success. So I would say if we can if we continue to uh,

As they see, you know as they execute well and measure their results.

Okay, you mentioned in the shareholder?

You with maybe non-core assets or is it more kind of tuck-ins unable to gain scale a decent content? But no scale what's showing up in the prospects lists? Yeah, we haven't you know people that are approaching us companies that have a you know Tech communities that are what I would classify more of a as a tuck in and we want to make sure that that aligns well with our overall, you know goals and needs and objectives as a company. We look at sites that might not have been well monetized and well-managed but they have a good community of Enterprise it and line-of-business users a line to a specific model that is very attractive to us and I would say over the last six to nine months. We've been you know approached several times. We want to make sure on a couple of things it ma'am.

For the business and it's uh, you know, a valuable tuck in that we're going to be able to get more intense signals. We want to make sure that those intent signals can help enable and Empower our priority engine Investments. We look at things that are also I said not managed in accordance of we what we would see them to be managed in and there's operational efficiencies to be happy. And then we look for any complementary Revenue opportunities with that. What we won't do is take a look at something to make an acquisition that's you know, disruptive against organic momentum and throw us off track. So we're very careful on that. We do get approached quite a bit. We've had you know more companies approaches. So we we look at the right balance across the revenue mix the community projects in the intent signal mix and answer your question about the stress. We don't really we don't buy distressed properties. So those other you know companies that that's part of the strategy. We're we're looking for things that are you know, yep.

Increase level of interest in pursuing m&a. Just wondering are you seeing is it people approaching?

High quality and that we think is Mike said we can you know, we can use our you know. Skip

El to you know, monetize it better or it will contribute product wise, but we're not really shopping for distressed properties, okay?

congrats on the

thanks. Thank you.

The next question comes from Marco Rodriguez from Stone Gate Capital markets, please. Go ahead. Good afternoon guys. Thanks for taking my questions. I was wondering if maybe you can talk a little bit more about your your product roadmap for for a 20 20. If you could perhaps just talk about this particular new features kind of a road map as far as off when you expect to kind of release then and then is there going to be an incremental spend or is that just something that will be expense as you go along?

Right. Yeah, Marco, we we typically historically we've done several product releases throughout the year and over the last couple of years we've done is try to do continuously adding on new features and functionality that we can put into the product and get it into you know for our customers. So I'd say a big Focus for 2020 and beyond for priority engine is putting some of our development efforts into the sales use cases for priority engine. We have a very strong relationship with the marketing departments within our organizations. They know how to use our integrated campaigns. They knew how to use our intent 8 or our branding Are Legion content marketing efforts you name it and they use that really well for you know, marketing strategies or multi-touch campaigns or adding on and building up a their database bills and messaging contextually aligning their messaging without right are most appropriate editorial sites dead.

That's a good thing.

However, a lot of the day that you know, the marketing department have been buying from us been going down to the sales teams and they're inside sales teams and beady eyes and outside sales teams have a tighter alignment tomorrow with a leveraging what marketing is producing and throwing in generating for them to help them grow their own Pipeline and work in their own territories and drive their own revenue and we've seen a lot of successful I use cases and remember when we first got into this it was really focused on the market and use cases. We've watched this transition where sales teams within our clients environments are seeing in leveraging the day that we're providing through priority engine in the integrated subscription with some of them with wild success. So we want to focus a lot of our product efforts to drive more successful sales tax cases when the sales teams that use our data use it the right way they win and when they don't they miss a really big opportunity, so we're going to be focusing a lot of our efforts on Thursday.

We want to make sure that we have tied integration into our clients sales force, you know today we do a widget plug in and we're going to be looking more to do other Connect app. So we can leverage the data that our customers sellers have within their own territory database along with what we can deliver and priority engine and be able to provide more Roi metrics and attribution and lastly a key Focus for our product development. Roadmap is got to be east of use. We need to make it easy for sales folks to not only use the product know how to use it and be identified when to use the product sales teams get very busy and they focus on you know, they have a territory their account territory. They're focusing on different deals. We want these sales folks to be in the platform every day and every week we want to make sure that we can help alert them to not only enter the platform but to go check out

these accounts within their

Territory or their patch for these specific regions reasons to engage in hopefully Drive New Revenue opportunities, for example, a couple of weeks ago. We launched our email sales alerts and we now can focus and reach out through email directly to sales reps that are signed up for priority engine to let them know. Hey right now with these three accounts in your region or in your territory have these reasons to call based on the intent signals and techtarget is captured this week also known not only within the account at the individual Prospect level. We can let them now John Smith is now starting to look at your content or possibly worse. John Smith is looking at your competitors content. Need to re-engage and get back in a priority entrance with a click-of-a a link their viewing those account in those people that are we're telling them that it's relevant and it's important for you to go after today.

So that's a really big opportunity for us because this is a you know a new new.

For type of constituency for us because we've historically been focused on the marketing folks and this is a good opportunity on sales and getting sales adoption in sales growth the second part of that question in terms of the expenses, you know, these are baked in in terms of 2020 budget we have you know headcount and we have faith that we're looking at the build and and add on into the priority engine development as well as some of the other areas that I spoke about earlier and we built the added to the annual and quarterly numbers.

Understood I'm priority engine Express. Can you maybe talk a little bit about what that margin profile looks for that particular offering versus the the Enterprise version if you will check and see if maybe you can share with us. If you have some any sort of expectations or goals or markers that we can kind of take a look at as that that product it's fully launched here in fiscal twenty. Yeah. So just as a reminder the priority engine Express. This is our lower end priority engine subscription offering and it's geared towards, you know, took em b s m b account and Regional resellers, you know, we have dedicated route selling that they started selling priority and Express and the second half of last of 2019, you know in the price of that is roughly one-third the price of a standard priority engine deal. The other thing I tell you on that it's more a hundred percent of priority engine Express dead.

Subscriptions re annual subscriptions. So those cannot be sold quarterly and those were all and all subscriptions in terms of the margin.

Profile. It's the same margin profile because we're leveraging all the same intent data that we have that powers our entire universe product and solution offerings. The only difference on Thursday is the pricing and some of the features and functionality that we don't allow and put in into the priority engine Express that we have in the other offerings. And can you repeat the second question on that? Yeah. Just wondering if you have any sort of goals or metrics that we can kind of follow along as you progress in fiscal twenty with with the full launch. Yeah. I don't break out the individual products. I mean, we do bake it in as part of our overall priority engine numbers and we do report in the priority engine numbers, you know, I can tell you that we met some good adopts and we're happy with where we're at. And you know, we're continuously focus on this area too because we believe it's just a an untapped opportunity with a lot of Greenfield throughout a lot off.

a lot of small small-size companies that we've really never had a product offering that really aligned well for those for

Folks so I would answer that question that it's baked into the overall priority engine number.

Got it and just last Quick kind of a housekeeping item. I don't know if I miss it in the shareholder letter, but do you have the the revenue figures for the Region's for Q4 for North American International?

I'll be in I'll be in the queue.

Okay, great. Thanks.

There are no more questions in the queue this concludes our question-and-answer session and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect off.

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