Q4 2020 TechTarget Inc Earnings Call

Good afternoon, welcome for Tech target, 2024th quarter, and full year financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions.

Please note. This event is being recorded I would now like to turn the conference over to Charles Rennick General Counsel. Please go ahead.

Thank you Kate and good afternoon, joining me here today are Greg straight cash our executive Chairman, Michael Joyce, Our Chief Executive Officer, and Dan Our CFO before turning the call over to Greg I want to remind everyone on the call of our earnings release process.

As previously announced in order to provide you with an update on the business in advance of the call. We have 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.

Statements made today by tech target, they're not actual maybe considered forward looking statements. These forward looking statements are based on assumptions and are not guarantees of our future performance actual results may differ materially from our forecast. Please refer to our risk factors in our periodic reports filed with the SEC.

These statements speak only as of the day of this call and Tech target undertakes no obligation to update them. We may also refer to financial measures not prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures. The most comparable GAAP measures accompanies our shareholder letter.

With that I'll turn the call over to Greg Great. Thank you Charlie.

Finished the year on a very strong note our momentum from 2020 has carried into 2021.

We had an extremely busy Q4, we closed two acquisitions and completed $200 million convertible debt offering.

Our results for Q4, 2020 revenue grew 28% to approximately $45 $9 million, we recognized approximately $1 $2 million from the nine days that we owned bright talk excluding the bright talked revenue contribution target revenue grew 24 per cent in the quarter adjusted EBITDA grew 53.

Per cent to approximately $18 million.

Adjusted EBITDA margin was 39% long term contracts for debt represented 34 per cent of revenue.

Gross margin was 76 per cent.

And adjusted our adjusted free cash flow was $13 $6 million, representing 76 per cent of adjusted EBITDA I will now open the call for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star then tip at this.

We will pause momentarily to assemble our roster.

My first question is from Aaron for from Raymond James Go ahead.

Great. Thanks, guys and congrats on the quarter in the year a couple of questions.

First maybe just in terms of the 'twenty 'twenty, one guidance kind of how should we think about any other drivers that would lead to more of the high end of the range kind of what needs to go right and then.

Maybe on a quarter, maybe it's probably still early but can you comment on traction with the expanded the sales use case of the product and then maybe just the linearity you saw during Q4, maybe into the early part of Q1 here just the traction youre seeing as well. Thank you.

Right, Hey, it's Mike in terms of the <unk> 'twenty 'twenty, one guidance does it get to that line yet obviously as we've talked about in the past several quarters we.

We see this you know early transition when the early innings of this whole transition for data driven sales and marketing organizations at enterprise B to B all companies.

Companies to really drive their marketing and sales efforts and.

We're seeing a quick adoption on that.

In terms of what we're able to offer on a first party purchase intent data.

We're still seeing those trend shift from face to face events. Obviously you have been depleted. We don't believe that those will be I would come back to even pre COVID-19 levels. So as companies get more adapted inclined to adopt.

For Hardie purchase intent.

Data to help fuel their sales and marketing organizations, we still want a really good position on that remember our investment started the content level, we produce the content we have a registered opt in audience.

Which create first you know the largest first party purchase intent not work for enterprise B to B technology marketing and sales for you you have some macro trends going on in the market in terms of third party cookies bid stream day to that I'm gonna come onto questions I am going to come under some scrutiny. So we feel we can execute on that obviously the integration you know in the <unk>.

Working with bright talk and ESG.

As we what we know that could help accelerate and get to the higher end zone into the market.

Churn for the sales use case, we got a very strong focus on our priority engine sales use cases, you know we launched back in the beginning part of Q for.

Some other modifications in which was really some day updates for priority engine typically and even now we still sell them to marketing organizations marketers take our data they leverage it for a b M net new accounts penetration a competitive takeout.

Now, we're seeing a lot of the sales folks territory managers inside sales reps leveraging the data. So we made a massive investment to make sure that the data that we are supporting importing into priority engine will go into that sales used case and go into their sales workflow more naturally.

So one of the things that we worked on that was Inc.

Prospect level intelligence, so that was a huge launch in October we've seen a lot of success on that so before we rank all of our accounts and priority engine based on technology segment based on region and then within those accounts you will know the active prospects that you should focus on well reps have a different view.

Use case, they want to know who I should call now what I should say to those folks at the individual level. So that was a big advantage. When we're seeing a lot of success in other big Advancement was we've now customize entry point so.

If somebody has a inside sales rep or a wrap out in accounts and they want to cover the data protection market. We can now customize entry points that goes even deeper than the day to protect your market with vendors that they engage with right. Now are you looking at data backup and protection are you looking at a synchronous replication. So now those.

Sales reps have more insights into the individual prospect of buying team member that they want to go after tighter integration and the sales force. It's been a very big focus for us as we head into 'twenty 'twenty. One we're going to continue that we want to personalize the priority engine.

Sales use case to help guide our sales reps, who are customers to not only know who but went to call to be able to interact with them on the fly and say by the way. This prospect just engage with your content. This prospect just visited your website.

I suspect, it's doing something on social media. So we really focus on that we're seeing good traction we're seeing good use case in <unk>.

Terms of the.

Q4 to Q1 momentum on that.

As we saw we saw a lot of our customers.

Ambac navigate through the Covid pandemic still trying to navigate well we saw a big uptick in our lead generation effort and that's been a good thing for us because what day it isn't count that as a lot of net new customers for us that are that cross tech target because of our audience investment a registered often members and our third party.

And Pat and we have a huge focus as I mentioned in our last quarter to take those three six month programs and transitioning those to a subscription base always on integrated programs that will be at the foundation will be priority engine.

Got it great and then just finally, our international I didn't see that broken out can you provide any color around the international numbers for the quarter.

Yeah, the international numbers.

Through up almost 30% from 29%, we're seeing great success from the international market.

Again, when you look at those international markets are typically a little bit behind in the U S markets around data driven and digital you see some of these regions that are very heavily concentrated in face to face events.

So this whole digital plant from Asia, which.

Could have been projected to happen over two or three or four years has been accelerated with the COVID-19 opportunity. So we continue to want.

For the pandemic right now so we continue to invest in those markets and we continue we project she saw growth in 'twenty 'twenty one.

Great. Thank you guys Youre.

Youre welcome.

Our next question is from Jason <unk> from Craig Hallum Go ahead.

Thank you just wanted to ask on you know.

The last couple of quarters, we've talked about your customers opting for shorter duration agreements as opposed to priority engine. So wondering if any of that changed in Q4 or early here in Q1, and then maybe you can also elaborate on just as things open up a little bit more what is the strategy to go back to some of those customers and try to get them into.

That longer term subscription.

Yeah, Jason Yeah. Good question, so as imagined since March one we've had the pan debt in March of 'twenty 'twenty. When the pandemic came in a lot of our customers mindset was you know we have to hunker down we want to navigate through debt and especially for smaller customers to we don't want to commit to a something that no one would be something that's long term.

So our customers have come to us knowing again that we have a really good relationship with our audience because of the content investments that we're making to our audiences across 140 plus sites.

They've come in to help navigate through this through Q3, Q4 and listen we're still navigating through some uncertainty with the pandemic. So we're seeing some good growth now our playbook on that is to stay close to those customers make sure. They understand that all of our intent led lead generation programs and other programs of work.

<unk>.

Walk them through how to transition from that three or six months to an annual subscription with priority engine and not only with priority engine still.

Highlight the value of integrating it with content marketing contractually your line branding messaging so that their surrounding the buying team members throughout the entire buy journey. So yeah. That's our playbook on that we're on it we're seeing some good momentum as we head into 'twenty 'twenty, one where there are some customers that were.

90 day programs for 180 day program, starting to transition into that longer term commitment around priority engine and integrating it with our content marketing and we are staying very focused on that execution.

And you mentioned that the prospect level intelligence, just a little bit ago, but wanted to see if you had any updates there as far as how that pipeline has continued to progress over the last few quarters any specific feedback you've gotten from some of the other users.

Yeah. The feedback we've got has been extremely positive you know sales reps.

I Wanna get information in their workflow. So what we provide tomorrow in a market is a very important part of our overall you know value prop and use case. However, the day, there's got to be able to fit into their sales force or any CRM system now sales reps have a sales enablement platforms, you know sales loft outreach IL.

Like that they need a cadence that works with that so our focus is making sure that we continue this momentum of sales rep usage people that have identified themselves as sales reps to our data to make sure that they have access to the day to that aligns with their territories individual prospect levels in their workflows, whether it's the sales.

For us or a sales enablement platform cadence and that's a big focus for us to make sure that we continue our tight integration into what works well for the sales folks as well as the marketing departments.

Perfect last one for me just on on the bright talk acquisition, specifically I mean, it seems like Theres a lot of opportunity for revenue synergies. There can you talk about how over the course of 'twenty. One here, how you expect to that kind of layer in and impact the model.

Yes, Great question, we're really excited about the bright talk acquisition and first thing I'll say is you know a lot of organizations you know acquire other organizations and their you know where the cost synergies focus that's.

That's not the focus right now Brian talk and their team have done excellent job they've had a lot of momentum and our goal is to say you don't help support and accelerate that momentum. There are a lot of I would call low hanging fruit cross sell opportunities think about what Bryan talked does they provide not only the for content.

To create talks and Webinars and videos and summit, but they also have a registered membership and audience tech target on the other hand as the Calpine team purchase intent data and engaged audience. So we're going to be looking at a out of the gate what are the best opportunities cross selling upsell our customers.

We will look later on down the road at how do we leverage our audience is how do we leverage the intent data that we're getting from the bright talk platform and integrated into priority engine, we're going to look to drive membership and intend to the bright talk community because they have an active and engaged community. So those are the things that we're looking at but in the short term.

We are keeping that momentum flying we are engaged with these with both teams to identify which customers have an opportunity to get you know cross sell opportunities and provide world class customer service.

Yeah.

Alright, thanks, guys.

Our next question is from Eric Martin Who's Safe from Lake Street.

Ahead.

Yeah, I wanted to make sure I understand the guidance for 2021, so I'm going to refer to that part of the shareholder letter I noticed she is an upper case adjusted revenue expression should we anticipate seeing a.

On a GAAP revenue plus the non-GAAP adjustment getting us to an adjusted revenue each quarter as we go throughout the year.

But other Gulf, Dan our CFO answer that.

Eric you can expect to see that reconciliation done in the future shareholder letter.

Okay and that will ripple through to the adjusted EBITDA.

Correct.

Okay.

Oh in the letter we put a net $5 million in Q1, and 11, a half million dollars for the year of that's the current schedule for the deferred revenue.

That we're under GAAP were not allowed to recognize yeah and from my experience with the for kind of tapers quarter by quarter with each successive quarter being less than in Q, the first quarter of debt.

Correct way to think about it.

That's a fair assessment of how to look at it yes. Okay. Now you guys talked about the acquisitions you know checking a lot of boxes. One other things I look for was the incremental profitability and I see it finished out 'twenty 'twenty with adjusted EBITDA margins in the 34 per cent range.

If I do the math on the guidance for 2021, I'm coming up with something less than that help me understand that debt decrease in adjusted EBITDA margin.

Yeah. So the.

Both of those or acquire.

Acquired businesses margin was a little bit lower than tech target.

So that's one overtime, we believe that their margin structure will come in line.

With the tech target property in the meantime in the short term you.

These acquisitions were based on revenue synergies.

So we have no you know we haven't there's really no expense synergies that we've been able to achieve yet and we don't have big plans for that but obviously there'll be some.

<unk> expense synergies over time for example, this quarter where pain.

Three key F O. So, but that's you know that's not going to be a long term thing so but if you look out over the next couple of years, you'll continue to see a margin expansion in line with historical tech target margin expansion.

Okay. That's helpful. And then I don't know if you can disclose it but I'm curious to know do we have a revenue number for either bright talk for for ESG I wouldn't expect them to be audited, but revenue number for 2020 for either bright talk or ESG.

So we've disclosed a bright talk revenue number and the convertible debt offering of approximately $50 million.

E. S. G. M is not has not been disclosed and it's not required to be disclosed so we're not going to for competitive reasons.

Okay.

And then.

Lastly, the.

Historically price increases would've happened in Q4 and an impact your.

Your long term contract commits what can you tell us about either maybe as a percentage of the price increase what percentage of the priority engine customers what percentage of the revenue is kind of impacted by that.

How much more we can.

How do we benefit from the price increase on the legacy business.

Yeah, I mean, we we have implemented a double digit price increase what would be a debt additional features and functionality from focusing on the sales use cases we've.

We've had.

A lot of pause you know positive feedback on that people are trying to become data driven sales and marketing organizations. They understand our first party purchase intent.

You don't get a lot of pushback on the price Eric and so we expect that to continue and we are looking at additional features functionality integrations down the road. So we believe we have some pricing power even moving you know in the near and long term.

But as far as if I look back on 2020, you know we had revenue in the year of 148 million I know your price increase doesn't impact 100% of debt base, what would that be like a third or a half of that that price increase.

Third or a half of the revenue base impacted by the price increase built they understand that.

Yeah, I would I would look at and say rough a rough numbers of your price me about a third on that and as you know that when you.

Customers sign up at different months of the year for long term contracts. So.

All of our customers start in January you had recognized even if it was a third you'd have a recognize a third of that revenue would be price increases on net customers sign up in February March April may. So you get a rash, though you know pro rata amount that are affecting the increase but I wouldn't I would use for your estimates about a third.

Okay.

Alright, Thanks for taking my questions and congratulations on the very busy Q4.

Thank you.

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Yeah.