Q4 2022 TechTarget Inc Earnings Call
Hello and welcome to the Tech Target for Ports, fourth quarter and fourth year 2022 financial results conference calling webcast.
gap revenue grew 13% to approximately $297.5 million.
Adjusted revenue grew 9% to approximately $299.2 million. Net income was approximately $41.6 million, an increase of 4,285%. Adjusted EVIAT grew 16% to $122.4 million.
Net income margin was 14%. Adjusted EVOI margin was 41%.
Gap gross margin was 74%, adjusted gross margin was 77%.
Longer term revenue grew 18% to $123.5 million, representing 41% of total revenue.
Cash flow from operations was $90.7 million.
Free cashflow with $76.7 million.
For Q4 2022, GAC revenue is approximately 73 million, a decrease of 5%, adjusted revenue to 7%, so approximately 73 million dollars.
net income was approximately $7.2 million in increase of 145%. Adjusted EBITDA decreased decreased 9% to $29.5 million.
Net income margin was 10%. Adjusted EBITDA margin was 40%.
GAAP gross margin was 73%, adjusted gross margin was 76%.
Longer term revenue group 5% to $29 million, representing 40% of revenue.
Casclaw from Operations is 19.8 million. Free Casclaw was 16.6 million.
I will now open the call to questions.
Thank you.
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Our first question is from Justin Paterson from Keybank. Justin, please go ahead.
Great. Good morning, two if I can. First, just with back to the macro environment, you've been through cycles before, so could you give some context on just how the current environment compares to past periods of anxiety and...
elongated sales cycle that you've seen and you know how long you think that could last and pressure some of the KPIs that you said deteriorated a bit in Q4. And then secondarily, I just want to talk about efficiency. I saw the headcount reduction in there. You alluded to some other potential savings on
on excess office space. It can walk through what savings is contemplated in the guide today and where you think you have some further opportunities over the course of the year. Thank you.
Great. That Justin in terms of the macro cycles. What we've seen is...
I think it's been highlighted in document over the last 45 days how quick and material companies are laying off and it's very widespread. So we started seeing signs of that a little bit after our Q3 earnings call in November . But it really was the middle of the summer and all the way through today where there is widespread quick.
and they make those quick decisions to hold on. So everything that I've read, seen, conversations with customers, partners, actually even some of the competitors is Q4 got worse. It got really bad at the end of December , worse than Q3. And Q1 is off to a slow stop because of this behavior. So I think that's, you know.
I hope that we see it on that and that's obviously going to elongate sales cycles, budget reviews, approval. And that's continuing as we say, gosh, and today, college boys.
In terms of efficiency, yeah, we had a reduction in headcount
in December of about 5% of the work we work. And as we go into this year, we've announced a 90-day hiring freeze on that only to keep it, you know.
business travel for customer and employee customer engagement.
We are looking at least in sub-writing some of the buildings and office space. Can we feel that we're in a pretty good shape? It's really important, and even during the downturn that we stay opportunistic around the key priorities that will help. With we've seen historically, and you've covered us for a while, where we take an opportunity to take market share by making the right investments.
So yes, we've down, we've load our overall E-DOM margin, guys, 35%. Could we maintain it for 1%, we believe we could, but I don't think it was in the right decision in terms of addressing the short-term opportunity. 3, 2.
take advantage and gain market share for the long term growth opportunity because the overall trends that we've seen and talked about over the last three years haven't changed.
When you look at our customers, the sales and marketing departments have to be modernized and they really want to focus on first-party data. Having access to real first-party data, not only at the account level, but the individual prospect level is really critical for our customers. And privacy and compliance concerns that can continue to go, you know, address this market.
really put us, those long-term elements in those long-term, well-called tailwinds, don't really go away, even during a downturn in the macro. So.
Great. Thank you.
Thank you.
Our next question is from Aaron Kessler from Raymond James. Aaron please go ahead.
Great. Thanks guys. A couple of questions on the guidance as well. In terms of the reduction in spend, is that across all client types, all sizes, and second, any product areas you would call specifically where you see more pressures and more on the advertising side versus priority engine, et cetera. Thank you.
Yeah, we're seeing, we're seeing we got you across all customer base.
from SMB, Mid-Mark, to Enterprise. And it's been like I mentioned in the previous answer. It's been really quick and really wide, really deep on that. So we've seen that across the board. I think customers are trying to reset their cost, manage their budget, figure out what's going on. And I've seen...
probably the highest level of uncertainty than I've seen in previous downturns. In terms of product material, we actually do see a mix in product span and product max.
level of uncertainty that I've seen in previous downturns. In terms of product making, we actually do see a mix in product span and product length.
The first thing that will absolutely get pulled back is the brand. And we talked about this in the past, it's still less than 10% of our overall business, really hard to measure for companies and they pulled that back. When markets get better, it's probably one of the first things, you know, they come back on and they will increase the brand investments on that side. We also see a reallocation. We'll see.
that some of the long-term contracts which might be priority engines.
We might get reallocated to short term product needs, but we have a qualified sales opportunity HQL type of product where our customers are trying to learn any deal that they can see right now and what they want to have real form of the final type of product makes that they can do.
So we'll start seeing that mix. I've talked to some customers with them and you're allocated to a plumbing setting for the short time.
What I would say on that is it's really important for customers to manage their pipeline. Here's what we typically say.ranerese.com
We retreat leverage their own data right now I'm up straight in a very organized way and they're looking at a pipeline a day here
to be healthy. And that pipeline doesn't progress over the next four or two quarters.
And it does a progression to close deals. But you then realize that they still have numbers to hit. They have to quickly get that pipeline built up. And what we've seen historically, and we predict that this will happen again, there's a quick, quite back to quality. And that's where our first party intent data at, not only the power level, but the prospect level.
is really what we believe is the quickest path and the tools path to our company's next deal, our customers' opportunity to win the next deal.
Got it. Great. Any more color you can provide or in the letter you talked about, investments in the content enablement services as well as the content to close content that can use to provide a little more details around that?
Yeah, we believe that that is still a really good growth there and we're seeing that part of the business continue to grow. We talked about the dynamics and the demographics of today's Bahier.
Today's fire we've seen multiple studies and what we're seeing in our own research. Our majority of those fires today want a rep-less experience when they're dealing with their next purchase or the next opportunity.
And what does that mean? They want to engage in all of the information, relevant content, project based content, really help guide them without having to take a call for themselves. We made the acquisition of the ESC a few couple of years ago, and we really focused on our efforts around making sure that our customers have a good content experience to help them position their product.
Positioning their overall company's value prop against their competitive set. But also, and especially in times like this, there's economic validation. Why should you be buying my solution right now on a downturn? And our customers are really craving for that, saying, we need to make sure that we're taking advantage of the downturn to capture market share as well.
So that's all part of this end-to-end content to close concept, helping our customers build, create, and execute on the right content and messaging strategy, putting that content into the right executable programs to engage the right buyers, and then helping prioritize those buyers and accounts.
Back into the sales force through our priority engine and other platforms that we can then help them close more deals quickly.
Great, thank you.
Thank you. Our next question is from Joshua Riley from BTN. Joshua please go ahead.
Thanks for taking my questions. The Q1 guidance implies that the low normal seasonal trends that typically include a sequential decline in revenue of roughly 10%. What does this imply for the normal seasonal patterns for the business in 2023 where in? for example the limiting age of the high wear period trademarks. And then family??. And then you simply apply this criteria.
Q2 and Q4 are typically your stranded quarters. You still expect that dynamic to play out in 2023, just after an overall lower revenue base, implying that revenue should improve sequential Q2.
Yeah, good question Josh, and from base of what we see right now, the pattern should stay pretty consistent on that.
In Q1, as you see, it's low than our normal seasonality, and that's because of what we talked about earlier. The end of December and out of the gates in January , we've seen a lot of customers really try to navigate their budgets and their cost cutting, and obviously that's the catalyst on that. It's the massive layoffs that we've seen.
But we expect Q2 to grow. Q3 would be relatively consistent with Q2, maybe upslide in, and then Q4 would be our biggest
And when you take a look at that and you compare it even to last year's comps, we still believe that pattern will shake out for 2023. We hope that you will stay clear on this.
Got it. That's super helpful. And then if you look at the customer additions of $539 in 2022, that's a really pretty strong, impressive number. Given the lower outlook here for 2023, is the slower spending include these new customers to Conviction did this, is the longer spending as an increase in Salmon value, which is a
that you just brought on in the last year, spending less as well, or can you give us any color on either the profile of the customers that you added in terms of technology, vertical, or size, and how are they going to spend in terms of your expectations this year?
Yeah, I think it turns out the new customers that we added, you know, it spread across all of our customer segmentation. So a lot of small customers, mid-sized customers, and add-on to a few of the larger customers as well. And we added those customers throughout 2022.
But they're also going to be going through you know we're thinking into everything of our guidance today of what we know and what we're seeing in the behavior in the market. So those customers will also have you know decisions to make in terms of budget coming out of the gate, managing expenses.
and then identifying where they align on pipeline. And we believe that they, you know, a lot of those customers will stay with us. Some may grow, some may...
Reduce their spend, some make the way they'll spend.
reduce their spend, some may delay their spend. But I think the one common...
Being that we've seen even in past Valentine's.
is when you identify the current pipeline within customers not progressing.
And trying to do it with their own data or leverage what they currently have, there's a fight back to quality. When that happens, you know, we're not sure. I mean, this market has changed so much in the last 45 days and we continue to see announcements every day in terms of massive wayoffs. But that's what we expect to see going into 2023.
Got it. That's super helpful. Thanks, guys.
Thank you. Our next question is from Brian Burden from Cowan. Brian , please go ahead.
Hi, thanks, Zach. A's have been on for Brian . First question on guidance and visibility. Just curious on the macro considerations that you're embedding here for the calendar 23 outlook. And what's the underlying priority engine growth assumption? Thanks, everyone. Thanks.
I think the natural considerations that we're taking is today's reality. Like we're taking a look at what we know right now, what we've seen in the last 30 days or 45 days, and that's what we've baked into our guidance.
As I mentioned, it's moved so fast in the last 45 days. You can see the announcements, you can see the depth of cuts, and you can see the breadth of cuts. So we can only predict based on what we know and what we're experiencing today. And in terms of priority engines, I expect that to slow down this year, because that's a commitment to long term contracts. So I expect that to slow down this year, and I expect that to slow down this year, because that's a commitment to long term contracts.
We've seen that in the past where people might slow it down. We might see a desolvation and revenue for the first, you know, a couple quarters on that and, you know, what things turn around.
Again, what we're doing not only on the.
on the business side, on the product development side, we expect to see, you know, on the booking side a pickup after we navigate through that. So I think you're going to see a decline a little bit during the year. We've seen that with the behavior of our customers at the end of December , the beginning of January . And that's really what we're going by based on what we are dealing with right now and today's customer behavior.
Understood. And then the follow-up on the same customer sales metric, it stood at 100% in 2022, so it was about flattish. Can you give us a sense of where this metric stood after the first nine months of the year to try and get a sense of...
What changed in 4Q as it relates to the same customer sales metric and what's the assumption embedded for same customer sales in the 2023 outlook?
So we only disclose that on an annual basis and that's when we started providing these numbers.
Two years ago, three years ago, it was on the annual basis, so we don't know where it disclosed on the quarterly basis.
But I would say that there will be some pressure on that number in 2023.
We monitor it, we don't disclose any score, but I would just say that being a little bit of pressure just based on today's current customer behavior, and you'll hold back on some expectant budget.
Got it. Thanks.
Thank you.
Our next question is from Bavan Sharf from Deutsche Bank. Bavan please go ahead.
Great, thanks for taking my question. Just one quick one in terms of the different products that you guys have and completely understanding that brand marketing can shift pretty quickly depending on the macro. But maybe what are some of the trends that you're seeing in solutions such as Priority Engine? Are customers being proactive here and maybe reducing spend as they are reducing headcount or is that something that they might look into?
We're seeing a shift on some of those
On the product shift from higher the engine, some of our qualified sales opportunities and H2O products because again customers are looking and they have a lot of pressure to land the current pipeline and they haven't placed their ones much information I hope they are in those fields identify new deals and close them in the next 30 to 45 days So we'll continue to see some of those shifts
I met Jameel and I was speaking to a couple customers and they said, listen Lee.
We're putting a lot of stuff on hold right now. We'll be back in a quarter, we'll be back in two quarters, and we're looking at appointments on it. Cuz we need to see some short-term numbers. We'll be back in a quarter, we'll be back in two quarters, we'll be back in two quarters,
The concern on that in terms of the data quality is
the approaches. You really...
negatively impact your pipeline. We have to be looking at this more than over a 30-day or a 90-day period. So customers might reallocate their project. We have a lot of customers that want to stay with us in terms of buying the content marketing, content syndication, USOs.
But you will see a shift over the next four possibly two in terms of, you know, with budget stake powder reduced, they may be allocated to more of this short term gratification. I need to be in part of a customer across that they in state pain. But that we seem to speak for and the pendulum swings back to...
Right back to quality. I need to get in front of the customers Where are my customers when they're not with me the research and auto tech target sites and communities that our editorial team? You know producers and our analyst team producers, and that will come back in our prediction
Okay, that's super helpful. Just one quick follow-up. In terms of just somewhat what you just mentioned, in terms of your content on your website-
What are you seeing in terms of traffic trends or change in registers for users more real-time? Have you seen a decline as maybe enterprises are less apt to kind of make IT purchases or are you seeing that remain stable?
It's actually the opposite. It's been very positive. So our organic traffic increased 50% year over year.
So that tells me that customers.
their prospects and their customers are going to our sites to get information. Now their deals might get extended, it might get elongated as well, just like we were seeing with our customers, but they're actively researching because they know they have to make the right technology decision at the right time.
in their leverage in our sites, and that's also been shown in our Google search rankings. We have 1.2 million search terms that rank one on page one of Google. So we're seeing the activity there and what we really say to our customers are your prospects and your existing customers.
research with technology and that is proven based on the organic growth and traffic of 50% in 1.2 million key terms that are ranked on page one of Google Organically.
Got it. Super helpful. Just quick clarification. That's 50%. That's an annual number. Any way to think about just what that trajectory looked like in 4Q or even what you're seeing in January .
I've been reporting here over the years that 50% was up from last Q1 in 2022, which I mean, so it's positive trends.
Thanks for taking my questions.
Thank you. Our next question is from Jason Cray-Callon. Jason, please go ahead.
Thank you guys. Just wondering any comments on churn related to long-term contracts? I'm curious to what degree those are being paused or if there's any instances where those are just being outright cancelled.
Yeah, Jason, some of the ways we have some of them being canceled, you know, beginning with the budget cuts that we're seeing, we're seeing someone getting reality as other products. And then we'll also see in that, I mean, there are people that are still buying the orange on contracts, but I just think it goes back to this whole uncertainty over the last 45 days.
And you know, you can correct me from wrong. It's been a long time, if ever, that I've seen.
The period of so many talks in 45 days in the enterprise tech business versus more of a
forecasted and more predictable reduction. So that's what we're seeing in terms of the turn on the long term contracts as it relates to priority engine.
And then in past recoveries, I know you guys have been really successful gaining share. It sounds like you're leaning into that opportunity now. Just curious what specifically you can do or what are the key areas of investment that you think position you for more share gain on the other end of this kind of macro uncertainty.
Yeah, you know what, I think there's three areas that we're really laser focused on. Number one is the content and management.
and making sure that we're investing the right resources and the functionality to help with our customers who need.
purpose-built, relevant, and impactful content, because without the content, you're not going to be able to engage with the buyers. These are really savvy enterprise tech buyers. And then mentioned earlier, a mention of past couple of earnings calls, you know, close to 50% of those buyers want a reckless experience. They don't want to be dealing with vendors.
sales teams out of the gate. They want information, and they need relevant information. It's got to be pre-gate, rates, relevant, technical, ROI, TCO type of information. And that's what we see in the metrics over the long term. And those government graphics and those buyers are not changed. They're not going back to the old days.
So we're going to continue investing now with reallocated teams technology process towards the sam evaluated by mr Forgotten and, I think you got the e-mail from J.O.
There is an opportunity with a high-arty engine plow.
in terms of, we talked about this in terms of having tight integrations in our customers'
about this in terms of having tight integrations in our customers workflow.
Increase power.
resources in the development team by 40% class over the last seven months.
in really the better integration, automation, visualization, and really about attribution by marrying our first-party data with our customers' first-party data to help them out and identify clearly at the account of the prospect level. But not only showing that, but also highlighting that.
in our ROI dashboards and visual capabilities. And that's really important and we're working on that. And you're gonna see some announcements coming out later in the first half of 2023. We've also put a lot of work into the enhancements around our BrightTalk channel platform. You know, our customers come to us today and they're saying, Scott, we need to have...
We need to stay close to our existing customers. Cosmer retention, we need to find out in that video.
And there's a way to effectively stay in part of your customers through episodic content through a webinar platform. And what we've built and what we released will show a big focus on engagement and conversion so that they can stay in part of their customers, get back in conversion, leverage that information.
Integrated also into our overall platform capabilities to help them. So those are three key areas that we're really focused on in terms of gain market share. Again, you've coverage for a long time. When we share the depth, it's been quick.
We just need to do the right things, stay opportunistic, measure cost structure, and gain market share, come on strong on the Internet.
Appreciate it. Thank you.
Thank you. Our final question comes from Eric Martin, who is the latest straight Eric, please go ahead.
Yeah, I wanted to get a little bit of greater detail on the geographic commentary. You talked about in Q4 EU off 9%, US off 3%. Just as we look at Q1 and your...
and your guidance for revenue decline of about 16%, how is that weighted between the geographies?
We don't disclose how that's weighted, but I will tell you Eric that.
The international markets are a little worse shape than North America. So we've seen that, you know, you've watched all the news and the media over the last couple of quarters you saw it coming.
If you're getting hit a little bit more so I think that you want the math will hold up a little bit more than the international market.
But it's going to be fairly consistent in terms of the ratio.
Okay, and then the same issues in both geographies, the elongated sales cycle, budget cuts, freezes.
Absolutely. I mean, for the folks that have the regional budgets, we are still seeing it. A lot of the regional...
Field marketers and sales teams and marketers are getting the mandates from corporate and below those corporate offices are in North America And the sample back they're going to pull back quickly on that and they're going to wait for the green light to go So they'll like I said, it all goes back to pipeline progression of pipeline
impact of what they're doing and then a fight back to quality. So if it's a quarter, it's a quarter, it's two quarters, it's going to happen and we know that and there will be a flight back to quality, there will be a flight back to accelerate my pipeline because we all have numbers to hit across each region.
Yeah, and then my last question has to do with the buyback. You announced a $200 million buyback in November of 2022. But that plan assumed, I want to say, a hundred million of free cash flow in 2023, given the reduction in outlook for 2023.
Are we going to be less aggressive on the buyback? And then what is the new free cash flow expectation for 2023?
I want to answer the by-back approach on this, and I think we want to continue to be aggressive on the by-back and continue to stick to the plan that we laid out. We've seen over the history of our by-back has been very accrued for the shareholders and for the overall organization.
We take out close to 40% of our shares over the time and a price that's very attractive and we believe in the future of the business and we believe in where we can bring the business.
In terms of the free cash flow, I don't know if we gave any guidance on that.
So they make some assumptions based on last year's numbers and this year's guidance what we do for free cash flow
Thank you.
Thank you. We have no further questions, this concludes the day's call. Thank you for joining. You are in our Disconnector lines.