Q3 2023 TechTarget Inc Earnings Call
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Okay.
Good afternoon. Thank.
Thank you for attending.
Forget reports third quarter 2023 conference call and webcast.
Name is Alexis and I will be your moderator for today's call.
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 Charlie Rennick You May proceed.
Thank you Alexis and good afternoon, everyone. Joining me here today are Greg straight cost, our executive Chairman, Mike <unk>, our CEO and Dan <unk> our CFO.
Before turning the call over to Greg I 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 posted our shareholder letter on the Investor Relations section of our website and furnished it on an 8-K.
Following greg's introductory remarks management team will be available to answer your questions.
Any statements made today by type targets that are not factual, including during the Q&A maybe considered forward looking statements.
These forward looking statements, which are subject to risks and uncertainties.
Based on assumptions that are not guarantees of our future performance.
Actual results may differ materially from our forecast and from these forward looking statements forward.
Forward looking statements involve a number of risks and uncertainties.
Including those discussed in.
In the risk factors section of our filings with the U E E.
These statements speak only as of the date of Oh.
And tech target 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 have we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures. The most comparable GAAP measures to the extent available without unreasonable effort are companies our shareholder letter with that I'll turn the call over to Greg.
Right. Thank you Charlotte.
I stated last quarter, we feel like we're bouncing along the bottom of the sales cycle, while we haven't seen material signs of improvement yet. We also haven't seen material science that suggests further deterioration is on the horizon.
We exceeded our guidance range for Q3 and are maintaining our two 2023 full year guidance we.
We are pleased that in an extremely difficult year in the technology market, we expect to produce 30% adjusted EBITDA.
Our philosophy is to use our leadership position and strong balance sheet during the downturn to prepare for a future recovery in demand through investments and the value we provide to our technology buyers and our product offerings for our customers. Our experience tells us that these investments will be rewarded when spending returns to more normalized levels.
I will now open the call for questions.
Yes.
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Ooh plus you briefly ask questions are registered.
The first question comes from the line of Justin Patterson with Keybanc you May proceed.
Great. Thank you very much.
Tease out a little bit more about the roadmap of additional product improvements you noted that you have.
Significantly increase R&D investments over the past two years, because we haven't gone macro that isn't necessarily getting worse, but it hasnt necessarily thought out.
Should we think about just these micro level growth vectors. These product initiatives that potential for for rig lighting revenue growth next year. Thank you.
Great. Thanks, Jonathan.
As we've said throughout the year as well.
Navigated this choppy environment, it's really important for us to put the right investments against the right play already.
One of those key investments around our product as well as our content strategy, but I'll focus on the product side.
It was our salesforce sinking integration so that we can get up first party data aligned with our customers first party data as.
As well as being able to sink and leverage the data with any third party platforms that they're choosing and that's really important because that creates stickiness that creates better usage of our data and that was something that we didn't have before.
We look at that in the long term roadmap because we eventually will see an uptick in the market. The more that we can get our data in front of our customers and as part of that July.
So we had which also shows a cow journey Visualizations, which can highlight show attribution in terms of what our customers are spending with us and how that's impacting there.
And how that's a positive ROI on their marketing and sales spend that's a positive thing not only for the short term on the margins down.
It comes back there's going to be a keen eye towards quality of data quality of investment in our Hawaii every marketing and.
Dollar spend.
Released as you saw in the announcement yesterday, our intent mail AI. So this is part of our personalized assist AI driven product strategy.
We see a really strong competitive advantage when it comes to generative AI types of Roadmaps and technologies and offerings.
Most of our prospect level opt in.
Level of intent insights. So we know that sellers need to spend more time, selling and they need to be laser focused on personalized engagement buying team members. So when we launched <unk>.
Our focus is on three areas relevancy efficiency and precision focus that will enable our customers sellers.
To be able to personalize their outreach based on leveraging tech targets proprietary first party prospect level intelligence for more effectiveness efficiency and ultimately for goals to generate more pipeline and close more business those investments that we're making today.
Currently.
Not only for today and tomorrow, but when the market picks up because we want to make sure we're putting ourselves in the best position to capture that upside.
Thank you.
Yeah.
Thank you for your question.
The next question comes from the line of Stephen Shah with Deutsche Bank You May proceed.
Yeah.
Great. Thanks for taking my question and nice to see the stabilization in the demand environment could you just elaborate on what you're seeing with your customers, both existing and new customers, our existing customers changing their buying behavior upon renewals down selling expanding and kind of invoicing behavior on taking out the longer term contracts.
Any more insight there would be appreciated.
Yeah. Thanks, Bob.
I would say the customer behavior existing customer uneven prospect behavior very consistent with what we reported in August.
I think it's no surprise that every most enterprise <unk> technology companies and navigating through a very uncertain environment, we're still seeing cost cutting we're seeing customers really trying to streamline their expands their head count.
And so that also changes kind of mindset in terms of when and how they purchase.
C a R.
Great six seven years rod towards building the long term contracts on a long term revenue very similar like.
Entering into Covid periods, well. This is a pullback where I think a lot about customers are trying to navigate on a short term.
Totally viewpoint.
When I look at what we've done as an organization over the past three plus years. That's important in terms of some of the acquisitions, we made in the depth and breadth of our product offerings, because we wanted to make sure that we're aligned with our customers being able to engage with those folks if they can't commit to launch them deals how do we talk to them how do we get in front of them.
Will provide value to our ESG and Brian talk acquisition, it might be around content and positioning.
Our strategy in terms of how they want to position their products and their company, we have the opportunity to pivot and talk about top of funnel mid funnel lower end funnel confirmed projects contextualized brand when it plays and customers and Theres still a lot of customers that are signing up for long term deals just not as much as they work.
Free pullback, we want to talk about our first party level intend at the prospect level to priority engine. So we're pivoting with our customers, we're staying engaged as they navigate and we want to make sure that we're in the best position through some of these investments we are making for when the when the overall market picks up we're going to be.
We're able to see it across all of our products and our long term revenue strategy.
Super helpful. Just one follow up on intent mail AI can you just talk about like the opportunity to monetize that over time, if that's something you're going to look the deal and then just in terms of the impact to the margin profile of the business that'd be appreciate it. Thank you so much.
Yes, I'll start with the second question of beauty of you know.
We made some investments on our product development and engineering staff and we've been very consistent with that throughout Q2 really a lot in Q3, and even heading into Q4, but as it gets ramped up we're leveraging the same intent that we've always had that delivers any of the products that we do whether it's a V demand Jan that's driven by intent.
Audi Amgen qualified sales opportunities. So the margin profile will stay very consistent and when the market goes up youll see expanded margins on that.
On the second part of that question.
In terms of modeling the real focus right now for us and I think with a lot of our customers is about retention and usage, we want to make sure that our customers have a reason to get engaged with our platform understand the data that we're delivering and getting more sales usage in there as you saw on the press release, we had a 35 band customers with 500 reps.
Leveraging it saw the feedback in the press release that was launched earlier and our goal is to expand that and make that GE generally available to all customers using priority engine at the end of the quarter, so getting our customers entrenched increasing their usage.
Going back to our July launch of being able to visualize what they're seeing and being able to get our data and the workflows that they're using whether it's through sales and marketing all part of the Grand scheme of what we're building for the long term.
Great. Thanks for taking my question.
Thank you for your question.
The next question comes from the line of Bryan Bergin with Cowen You May proceed.
Hi, Thanks. This is Jack easement on for Brian first question on priority engine, just kind of a follow up on the renewals question. So renewals usually overweighted towards the end of the calendar year. So just trying to get a feel for what your sense is on on the upcoming renewal cycle for priority engine.
And what assumptions are embedded in the <unk> does it does.
The intent mail AI going.
Potentially offset some of the broader headwinds here into year end.
So I'll start with the Q4 renewals everything that we baked into our forecast has everything.
We reported for our forecast in our guidance ties everything India currently Knowles.
Back in Q4 and in terms of our intent.
That's really a 2024 and beyond.
Pat and I would say that the impact on that our initial impact is really well aligned with our customers and it's about better visibility better usage better leverage of our data. So that you know retaining and making sure our customers see a better experience not only in the marketing side, which we've been really well known for but on the sales side, which is really important right now for both.
Marketers and sales so you won't see a revenue impact either way up or down based on what we're what we report and what we're launching.
Oh.
Got it okay and the follow ups just one on <unk>.
The long term contract revenue so it looks like some some further declines here and three Q I believe roughly half that bucket is priority engine, but maybe can you just shed a little more light on what comprises the other half of long term contracts and whether the performance here is in line better or worse than what we're seeing on the overall.
Our long term contracted revenue right.
Yes, the majority of long term revenue is tied to priority engine.
The other components that we do have customers that will sign up a long term.
Programs that have a content syndication or integrated product offerings branding.
Studios our channel.
Through our bright talk offerings. So we have a lot of that is baked in there. So as I mentioned earlier in terms of you know the <unk>.
<unk> I think was 36% which was down that's directly aligned to what's going on with the market and a lot of folks band well.
Well a lot of our customers really trying to navigate the next quarter never mind next year and that is that's pretty consistent with what we've seen but then pivot back to.
The reasons why we made some of those acquisitions and the products now that we have to go in and introduce or engage with our customers whether it's around building a strategic content strategy for new product launch or a new company positioning all the way down to confirm projects, which are bottom of the funnel type of products that we have to offer.
It gives us a better opportunity to stay engaged bring value and actually engage with new persona that we hadn't been able to gauge with engage with before so that's our playbook as everyone continues to navigate the uncertainty in the environment.
That's helpful. Thank you.
Thank you for your question.
The next question comes from the line of Bruce Goldfarb with Lake Street Capital You May proceed.
Okay.
Okay.
Alright, Thanks for taking my question congrats on the quarter.
Just a few questions do you have visibility into 2024 do you expect to grow in 'twenty four.
Bruce we're actually right now I think the best approach is to provide the guidance for 2020.
Our February call, we've all seen the lack of visibility it does nobody any favours.
And now what we see in 2024 things continue to change quarterly like I said before.
Where.
Navigating at the bottom of the cycle.
It's not a matter of if it's a matter of when it turns but I think we'd be a little bit yeah.
Again ahead of our skis, if we started announcing that right now.
Okay, and then how does the activity at Brightcove versus the historical.
I mean, everything's now integrated in terms of our product offerings. So we have a.
We don't break that down in terms of.
All right Todd product X Y Z versus tech target product, a b and C versus ESG.
All over the last two years was to integrate all of our offerings to provide a content strategy that.
<unk> strategy turns into a program program strategy.
Into and insights capability and capture that can be delivered back to our customer sales and marketing Department and I would say in terms of what we're doing across all three of those as well as Estelle during the health care market.
We are working against the plan and making sure that we're doing the right things on that.
Okay.
Thank you and what's the M&A pipeline look like.
<unk>.
Still being I forgot it.
Yes, I think consistent with years.
Three opportunistic in terms of.
M&A, we always look for areas, where it's either a good content strategy and audience strategy and additional capability strategy that aligns with our overall offering and long term goals and revenue.
And so.
We're always we're consistently in conversations and that's been consistent throughout the last couple of years.
Okay, and then lastly, do you think expenses will come down in 2024.
Well.
We do a good job of managing the expenses, we still have as I mentioned, we are making some investments in areas that we need to make sure. We are alive and put us in a position to capitalize on the uptick.
And some of those expenses that were looking at.
What I would call investments are on the product content and in the engineering side, but with that being said, we have a really good track record of managing our discretionary managing our hiring somebody leaves and we all know what we need to backfill them, we might not backfill them. If we have a major initiative we might realize.
<unk> resources internally, we have a really capable strong skill set sales force that can adapt and they've moved in different positions before and we take that approach in terms of how we manage the business. So I don't know if I would say that the expenses will go down, but we're going to continue to manage and make sure. We're prioritizing the right investments against the right opportunity.
<unk>.
Great. Thank you congrats on the quarter and congrats also on intent mail AI.
It sounds really interesting papers.
Yeah.
Thank you for your question.
The next question.
Jacob scaffold with Goldman Sachs You May proceed.
Hey, guys. Thanks for the time today, it's good to hear that there is a little bit of stabilization that we're seemingly near the bottom.
This macro pressure cycle that we're in actually just one quick one for me and I apologize. If this was touched on earlier, but.
Another company that you all are familiar with definitive healthcare noted if they see a lot of really strong top of funnel activities.
So it's a function of converting that top of the funnel to bottom of the funnel can you talk about the top of the funnel activity and maybe how those conversion rates to bottom of the funnel had trended this quarter or I guess three to thus far in core Q against maybe two two in prior prior peer.
<unk>.
Yeah.
We don't really.
Disclose the conversion rates on top of the funnel to the bottom of the funnel, but let me give you a little bit of color.
What you see in the market right now.
Even though.
Customers across the enterprise Tech space deal there'll be an elongated what was six months is now 12 months or nine to 12 months, sometimes 18 months. So that you can see that in terms of you know people doing their research.
Thats tied to their customers that are pushing off deals because they're also trying to navigate the uncertainty.
But it really goes back in terms of what our main focus on one of our main focuses and that's on the content strategy. So we know that today's buyers demographics continue to change and.
At the end they want to wrap us experience they want to make sure they have information.
That's relevant to them and trusted when theyre, making 567 and eight figure deals.
One of the notes that we mentioned was our organic traffic was up 20% year over year, and that's coming off a 50% increase the previous year. So I'll go right now to make sure we're turbo pages or visits and the newer network members to then serve them up with the most relevant content to throw up the most.
Obvious intense signals to help our customers.
Drive top of the funnel.
The right conversations to drive those to mid funnel and ultimately be in the best position to close those deals. So that's really our focus but I think he can see throughout the entire market.
Deals are taking longer and that's been happening throughout the throughout the course of 2023 I expect that to go into 2024, but we're doing all the right things around our content and our product offerings to make sure that we are in the best position to capture that uptick.
Oh, thank you so much.
Okay.
Thank you for your question.
Your next question comes from the line of.
All right.
UBS you May proceed.
Hi, Thank you for taking the question one on on Doug.
<unk> customers. So that's a number that you disclosed.
And it's been awhile, but can you talk about trends at all customers.
And then how would that translate into number of seats per customer are.
Average spend per customer.
And how that has trended over the year.
Then it was interesting you mentioned COVID-19. So when we looked at a b how you want the watermark in yard revenue, which was you know last year.
We think of the growth coming out as.
The macro improves.
How should be think of back with them.
Overall.
Macro.
Outlook.
But which may be more capital constrained.
Higher cost of capital and an increased focus in your enterprise customers for profitability.
Thank you okay.
I'll try to answer all of those for you.
In terms of total customers.
You know what.
It's in the queue.
29000 total customers in terms of it seems not all of our customers are priority engine customers. So we don't disclose seats, because we have a majority of our customers a lot of our customers are spending with us on their marketing and their branding go to market strategy or their content creation and their positioning strategy. So that's not a C.
In terms of that.
Terms of the macro and the outwork, yeah, we see what you're seeing in terms of <unk>.
Cost of capital and high inflation rates.
And they're focused on getting back to profitability. That's everything that's those are all three key areas that all of our customers or most of our customers are very focused on what I would tell you is.
There comes a point in time, when our customers pipeline does not support the revenue targets that they need to there's still revenue targets. So during a period of pullback in the market customers may take an approach of I'll try to do this on my own or I will purchase less.
Cost effective.
Less costly and cheaper data.
Well they will.
In terms of their overall budget process, but all of that stuff and all of those decisions ultimately turn into a formula where the pipeline that they are providing their sales is rolling up.
Not support that the revenue targets.
<unk> seen typically in the past is a flight to quality.
We are in a position unlike any other topic that I know that actually is in the middle of two core constituents.
The cells of technology and the buyers of technology, we provide a service for ball and so making sure that we stay in that position.
To serve our buying community who are the members as well as a selling community who are our customers is really critical to help capture that.
Got it thank you.
Thank you for your question.
The next question comes from the line of Andrew Marc.
With Raymond James You May proceed.
Great. Thank you for taking my questions.
Kind of more of a from a theoretical perspective do I have it right that you would benefit more if a more complex or confusing area and Ikea rose and there needed to be better clarification or information around it you know just thinking for example, like generative AI right now, especially given that there are so many vendors out there competing.
For mind share with their solutions.
Yes, that's a good way to look at this I don't want to theoretically mentioned that I think we will bring a tremendous amount of value around complexity in the market, but I would also say like.
Any major technology initiatives in the market around enterprise <unk> looking at security or storage or UI or you know a general day I.
We're providing a true value to both sides of the equation to the buyers of the technology because that content investment is so critical he editorial content the analyst content, our vendor content that we capture a bright talked community content everything there helps serve those buyers and we actually can help guide them because we have.
Proximity depth and breath with each of these specific markets. So when you get like a generative AI topics that comes out and you know us.
It was hot.
We think really well on that when you look at our organic search results I think we're ranked between one and two one over a thousand Gen. AI times I think if you Google generative AI. We're currently ranked number one organically. So we are in a really good position.
Help buyers who are trying to figure out what this all means.
Get to the answer or it's clear to any answer as possible, while they're going through their research journey. So I don't want to just assume theoretically that would be perfect across the board on that but that is absolutely a service that we provide and an opportunity to help our buyers.
I did just Google generative AI and you are number one organic so thank you for the color.
You bet.
Thank you for your question.
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So that concludes the call.
I get reports third quarter 2023 conference call and webcast. Thank you for your participation you may now disconnect your line.
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2023 conference call.