Q3 2024 TechTarget Inc Earnings Call
Speaker Change: Good afternoon. Thank you for attending today's TechTarget Reports third quarter 2024 conference call and webcast.
Tamiya: My name is Tamiya, 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. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to your host, Charlie Rennick, General Counsel. You may proceed.
Charlie Rennick: Thank you, Tamia, and good afternoon, everyone. The speakers joining us here today are Greg Strakosch, our Executive Chairman, Mike Katoia, our Chief Executive Officer, and Dan Norek, our Chief Financial Officer.
Charlie Rennick: Before turning the call over to Greg, we would like to remind everyone on the call of our earnings release process.
Charlie Rennick: 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.
Charlie Rennick: 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.
Charlie Rennick: Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section of our most recent periodic reports on Forms 10-Q and 10-K.
Charlie Rennick: 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.
Speaker Change: 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 ledger. With that, I'll turn the call over to Greg.
Greg Strakosch: Great. Thank you, Charlie. We are encouraged to report modest year-over-year revenue growth for the second quarter in a row.
Greg Strakosch: We think it is clear that the worst of the downturn is behind us.
Greg Strakosch: We expect to continue to see similar revenue growth in Q4 and into the early part of 2025.
Greg Strakosch: We have several reasons to be optimistic, including a better interest rate environment, the certainty that comes with the election behind us, and the expectation that there will be a new technology investment cycle around AI.
Greg Strakosch: We use our strong balance sheet to invest during the downturn to strengthen our leadership position.
Greg Strakosch: This strength will be increased with the proposed combination with Informatech's digital business. We expect this deal to close this quarter. I will now open the call to questions.
We will now begin the Q&A session.
Speaker Change: If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star 1.
Speaker Change: As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.
Speaker Change: Our first question comes from Justin Patterson with KeyBank. You may proceed.
Great, thank you, till if I can.
Speaker Change: First, you've had a lot of product innovation this year. I'd love to hear just how
Speaker Change: customers are adopting some of these new products, and what could be into the product pipeline for 2025? So that's the first question. And then secondly, Greg, I just wanted to come back to that point you talked about. There's going to be an AI investment cycle here. I know it's something we're all trying to work through the pace of.
Speaker Change: When you look at page views on your site, content being consumed, any signs that we're now closer to seeing some of that monetization come in? Thanks so much.
Speaker Change: Great, Justin, this is Mike. In terms of the product innovation, we've been very aggressive in terms of the product innovation and what we're trying to build.
Speaker Change: which is a subscription offering and it's a module of the Priority Engine but it's very focused on account-only first priority intent signals.
Speaker Change: And that was really important for us, because if you know us historically, we have focused on prospect-level intelligence.
Speaker Change: for sales activation and for, you know, marketing automation to reach individuals. At the account level, our customers have come to us and said they are craving for
first-party, account-specific intent feeds to help you different go-to-market strategies.
Speaker Change: For example, they look at account level targeting for customers, they look at creating ABM lists, they look at account prioritization based on first party insights, programmatic advertising, and account insights for sellers.
Speaker Change: So it's really important that we can provide our intent at the account level into our customers' workflows.
We announced as part of that a partnership
Speaker Change: with Sixth Sense's Revenant AI platform. So think about Sixth Sense and the platform helping customers have access to account insight feeds.
Speaker Change: unless they are subscribing to our Insights. So making sure that we have our Account Insights integrated seamlessly into the Sixth Sense platform, help our customers have a better experience, and to really help put that Account Insights into action around those use cases.
Speaker Change: The other launch that we did was Market Monitor, which is a real-time market dynamics.
Speaker Change: data set to assist our clients in a lot of different areas. Think about content investments, marketing, and sales outreach.
Speaker Change: So we're looking at the types of accounts actively researched in a particular solution.
Speaker Change: by industry or by vertical, the types of personas within those accounts.
Speaker Change: We're reporting on best performing content, what resonates, what doesn't resonate.
Speaker Change: as well as Competitive Insights, who's influencing or engaging within those accounts.
Speaker Change: If you take a look at our product strategy, we're really focused on connecting the dots across all the different products that we have to offer, from content enablement and custom content strategies, so that we can help customers.
Speaker Change: By identifying and providing them the insights on you need to invest in this type of content because this is what performs the best to go out and reach, engage, and influence buyers.
Speaker Change: That's going to help on our content strategy, all the way to brand, as I mentioned, content investment, all the way to putting the right assets in market for demand and intent that converts. So Market Monitor was another release, and we're seeing success on that as well.
Speaker Change: The other product that we announced was our Priority Engine Demand. We've been talking about this throughout the year.
Speaker Change: Think about this as really tying a holistic approach and providing our customers insights on how all the products are doing and all the solutions that TechTarget is providing them. Each of our solutions is powered by permission-based and first-party intent insights.
Speaker Change: So we want to make sure that we're revolutionizing and evolving the demand gen strategy. And this, again, is a subscription-based offering, where our customers will now have access
to customize car fan ops.
Speaker Change: Not only will they have insights into that active lead or prospect, but we will be able to deliver and provide insights into the buying groups and the buying teams within those accounts.
Speaker Change: that was focused on prospect level to find group levels so we can scale and make sure that our customer's in the best position to reach and scale with efficiency and efficacy to the right buying groups.
Speaker Change: It was part of that whole investment strategy to provide real-time analytics to show our customers how their content is doing, how their demand is doing, how ultimately their brand is doing, and tie it all together in a holistic view.
Speaker Change: These are really important investments as we get ready for the close and then the launch of a new company Heading into 2025. So we've been pretty aggressive on that and we're really happy where we stand on that
Speaker Change: In terms of the AI investment cycle, you know, what we see with customers is they're spending a lot of money in their research and development. A lot of the R&D is around AI enhancements to existing products as well as new products that they will launch.
Speaker Change: And the point of that is, there'll come a point when that AI, those R&D investments have to generate an ROI in terms of revenue growth and market penetration and market share.
and Ethel.
Speaker Change: Recovery continues and we get through that, you know, that R&D investment, you'll see, we expect to see, customers really feel growth around sales and marketing efforts.
Speaker Change: and being able to clearly identify the value that their solutions are bringing versus the noise that's in the market.
Speaker Change: And what better place to do that than around an organization that actually covers this market pretty deeply in technology buying teams and buying groups and organizations, leverage on the data, the insights, the annuals reports, and our editorial strength.
Thank you.
Speaker Change: Thank you. The next question comes from Joshua Riley with NEDA. You may proceed.
Speaker Change: Thanks for taking my questions. Maybe just starting off on the macro, you know, I guess, you know, you guys have been running this business for a long time and have seen a lot of cycles, I guess, are you seeing any trends in how this cycle.
Speaker Change: has developed relative to past cycles that can kind of give you confidence that spending will improve in a more material way next year, kind of in line with your commentary from the shareholder letter.
Speaker Change: Yeah, that's a good question. So, John, I'd say we've been in a two-year...
Depressed Technology Cycle.
Speaker Change: will talk to you a little bit about Q1, Q2, Q3, Q4, Q5, Q6, Q7, Q8, Q9, Q10, Q11, Q12, Q13, Q14, Q15.
Speaker Change: And we're still seeing those, you know, we expect to see very similar trends, consistent trends of Q3 as we go into Q4 and into, you know, the first half of 2025.
Speaker Change: If you've taken a look at a lot of the other, you know, some of the companies that have reported actually saw double-digit decline in the first half, you're seeing less of a decline in the second half. We feel like we're navigating a little bit better than a lot of our competition.
Speaker Change: You're seeing a lot at the end of the title. For example, we've seen two interest rate cuts. That always bodes well for the future for the technology market.
Speaker Change: We saw a presidential election, which we didn't know how that was going to go, if it was going to get contested. It seems like it's come and gone, and we're moving forward on that. So there are some signs out there that really will benefit, and we believe, the technology market and what we've seen historically in the long term. So I'd say in the short term, though,
Speaker Change: We'd like to see the consistent, you know, go from decline to growth, two consecutive quarters in growth, and being able to say, we have a pattern now of seeing year-over-year growth at modest, lowest, mid-single-digit numbers. That's what gives us confidence in the long term. Our focus...
Speaker Change: Right now is to close this combination with Informatech. We announced the Informatech digital assets
Speaker Change: We announced a special meeting date on November 26. We expect it to close shortly thereafter and then
Our focus will be executing on the business.
Speaker Change: making sure that we have the integration done in a timely manner and really navigate through the next couple quarters and look at, caption the upside, when the market does recover and when all these impacts come into play or these changes, and that's what we're really focused on right now.
a major contributor of your growth was
Speaker Change: you know, a pretty big increase in the SMB customer count. And then obviously we know they pulled back quite a bit, particularly when the Silicon Valley Bank crisis hit.
in this next cycle coming next year.
Speaker Change: Do you think that these F&B customers will come back or do you think that the growth will be driven more by the enterprise and larger customer cohorts? Thanks.
Speaker Change: Yeah, no problem. I think the first level of growth is going to be with our, you know, increased product and capability set at the large enterprises for teaching accounts.
We now have an ability to go wider and deeper.
Speaker Change: If you take a look at what we have to offer on our own product, you know, roadmap, and what we're watching, that's been really important for us to get ready for 2025.
Speaker Change: But when you take a look at the assets coming into TechTarget and combining with TechTarget,
Speaker Change: Can you talk about industry dive and being able to get into the vertical markets?
Speaker Change: and you talk about the Intelligence and Advisory Ombudman, DEA, and you look at, you know, IT, media markets, and brands, as well as the NetLine Engine, we have a really good opportunity to land and expand within our existing accounts. And there'll be a focus on that on the strategic accounts and the enterprise accounts.
as well as getting into those verticals.
Speaker Change: I would say that, you know, you nailed it. I mean, if you take a look at even Dartmouth's most recent...
Speaker Change: information that came out. It talked about some of the smaller tech companies that are, you know, really challenged with cost and really challenged managing their expenses and don't have access to finance and the capital that's really beneficial for them like it was or favorable, I should say, like it was a few years ago.
Speaker Change: They may continue to be challenged a little bit, but we still see some opportunities for us in terms of, because of the depth and breadth of our product offerings, to be able to do a good job with those smaller accounts, but I would say
Speaker Change: The number one place where we're going to be able to grow and land and expand is on the enterprise and those strategic accounts.
Speaker Change: Got it. Thanks guys and good luck with closing the deal.
Thank you.
Speaker Change: Thank you. As a quick reminder, if you would like to ask a question, please press star one on your telephone keypad. The following comes from Jason Cryer with Craig Hallam. You may proceed.
Speaker Change: Great, thank you. This is Cal for Jason. So first question from us, you know, can you just discuss how the pre-merger planning has gone so far and how do you feel like your position should the merger eventually go through here?
Speaker Change: Yeah, so Cal, we've been working on this since the beginning of the year when we announced it in January.
You know, we've worked together closely with
Speaker Change: the Informatech Digital Business Unit, working closely with Gary, with the business leaders, to really understand the operating model, how do we best set the new organization, set it up for success.
Speaker Change: The teams get along well, the operating model and the organizational structure.
Speaker Change: I would say it's been going very, very well across the board.
Speaker Change: I think everybody sees the opportunity and understands the opportunity that these two organizations coming together can really play a big role.
Speaker Change: in the long term, as well as getting off the ground in the short term.
We're focused on, you know, day one planning.
Speaker Change: We've got day 180 planning all the way to day 365. I'd say the team's been a large step on this, and I would say that the planning and the pre-merger planning has gone well. I didn't catch your second question on that.
Speaker Change: I think that was it for that one. But, you know.
Speaker Change: The second question that I just had here, you know, just kind of wanted to ask on the competitive environment. You know, you kind of talked about leaning on the balance sheet here, keeping your investments progressing. So, you know, how do you see those investments really differentiating yourself versus your competitors who may have had to pull back here during the down cycle?
I think companies like, you know...
Speaker Change: A lot of our competitors are private companies that we stay in touch with and we also have some public companies.
Speaker Change: And we've always had in any downturn, be optimistic. Always be careful on how you invest and understand how you invest, but be opportunistic because in a downturn,
Speaker Change: We have an opportunity to take market share and really put ourselves in the best position to capture the upside when the recovery comes. And even without a recovery, the investments that we make around our products,
Speaker Change: around our content and around our audiences, I believe put us in a competitive advantage. There are not a lot of organizations that I would call own and operate the sites and communities that have access to permission-based audiences as well as first-party intent.
Speaker Change: And to me, that's the most accurate and most effective way to help sales and marketing.
Speaker Change: when they're ready to invest in their growth capabilities for a driving revenue and market share.
Speaker Change: So those investments are really important for us. We take a view of, we understand we have 90-day quarters, but we take a look at the one to two to three years, and if we invest X on this because we think we can do it with our balance sheet.
Speaker Change: This will generate Y and Z in terms of return. So I think we're in an enviable position on that because of the model that we've built over 25 years. We're very disciplined and we're effective when we make those investments in the right areas.
Speaker Change: Perfect, thank you and I will echo good luck here closing the merger.
Thank you.
Speaker Change: Thank you. There are currently no other questions in the queue waiting at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect your line.