TechTarget, Inc. Q2 FY2024 Earnings Call

Good afternoon. Thank you for attending today's TechTarget Reports Second Quarter 2024 Conference Call and Webcast. My name is Gela, and I'll be the moderator for today. I would now like to pass the conference over to our host, Charlie Rennick. Charlie, you may proceed.

Thank you, Gela, and good afternoon, everyone. The speakers joining us here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. Before turning the call over to Greg, we would like to remind everyone on the call of our earnings release process. As previously announced, 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. You can also find these materials at the SEC free of charge at the SEC's website at www.sec.gov. 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. 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. 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 Form 10-Q and 10-K. 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. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most comparable GAAP measures to the extent available without unreasonable efforts accompanies our shareholder letter. And with that, I'll turn the call over to Greg.

Great. Thank you, Charlie. We are pleased to report strong performance for the second quarter of 2024, with revenue exceeding our target and increasing 14% sequentially and 1% year-over-year. As we noted in our first quarter shareholder letter, customers continue to be cautious about their budgets amidst ongoing pressures from high interest rates, inflation, international tensions, and the upcoming presidential election. This trend continued in the second quarter as technology vendors implemented additional discretionary expense reductions, layoffs, and other cost-cutting measures. In our experience, investors reward technology companies for revenue growth, particularly in a low interest rate environment, which in turn incentivizes technology vendors to invest in sales and marketing. We continue to make meaningful progress across our business and are confident that the investments we are making today, alongside our combination with Informa Tech's digital businesses, will position TechTarget as a leading comprehensive solution in a growing yet fragmented market and drive continued performance and value for our shareholders, customers, partners, and employees. I will now open the call to questions.

Our first question comes from Justin Patterson with KeyBanc.

Could you talk first about the macro side, some of the trends you're starting to see in Q3? How has the environment changed compared to what you saw over the course of Q2? Secondly, could you elaborate more on the opportunity around TechTarget Market Monitor and how you're going to market there?

In terms of macro trends from Q3 versus Q2, I'd say it's very similar to what we've experienced over the last four quarters. Continued high interest rates, inflation, as Greg mentioned in the shareholder letter, international tensions, and the upcoming presidential election are all present. None of these are catalysts to really explode and help out the market. In terms of how we're navigating through this, I think we've done a really good job regarding our product development, our product portfolio, how we engage with the talents, our product offerings and our value proposition that can really benefit our customers across their entire go-to-market strategy. We have a lot of different avenues to approach a customer, even during a downturn. Even if a customer might not be ready to proceed with something specific, there's an opportunity to drive value through other areas of the business. So I think the situation is consistent from Q2 to Q3. Regarding Market Monitor, that was one of our priority engine releases that helps our clients really understand the real-time dynamics in the markets they serve. It includes the types of accounts and buying teams that are currently actively researching their respective topics and technologies. We can then provide them with the topics generating the most interest within those segments, as well as competitive insights and market insights. We can show them top-performing content and how that resonates. As you can see, that truly helps our customers mobilize and focus on the top prospects with the market insights that TechTarget can deliver in support of their go-to-market strategy.

Our next question comes from Joshua Reilly with Needham.

Once again, nice job in a challenging macro environment. Regarding the layoffs you've seen across many of your customers, are you seeing any stability in their ability to land new positions and bring you back into their go-to-market process, or is there still too much fragmentation and uncertainty with some of these employees taking on new roles?

Josh, we see customers that have been impacted by layoffs and so far, we’ve seen them land in other positions. Typically, when that happens, it's a positive for TechTarget. They bring us in, and they understand our value proposition. I wouldn’t say we’re the first company they call, but I suspect we're among the top ones when they reach out. So right now, we’re seeing them get impacted, land in new positions, and then call us to bring us back in. This trend hasn't changed over the last few quarters.

As you're going to describe this more at the September Analyst Day, but as you've had more time to review the assets of Informa Tech, any updates regarding the timeline to close the transaction? And secondarily, any updated thoughts or confidence around the synergies and combined growth trajectory when the deal closes?

In terms of the combination, we continue to make good progress. We filed the S-4 at the end of June and are on track. We have scheduled an investor morning on September 19th. We've assessed the assets of Informa Tech, understanding the people and the business, as well as how they will work with our proposed operating model going forward. We’ve done considerable diligence on both sides and laid out a proposed operating model. We've examined the executive team at all levels. Therefore, we’ve made all the right moves to ensure we’re ready for the close, which we expect to be on time. Regarding synergies, we’re still confident about the numbers we stated: $25 million in expense savings and $20 million in revenue over the couple of years post-close.

Our next question comes from Bruce Goldfarb with Lake Street Capital Markets.

Greg, Michael, congratulations on your results. Can you comment on demand trends? What are you seeing internationally versus North America?

We've been consistent, Bruce. Going back to last August when we had our earnings call, we feel that we've been navigating the bottom. We hit the bottom, and we're now moving through it. I think that's consistent across the board, what you see in the U.S. is also reflected internationally. Some areas in certain regions internationally might feel a bit more pressure because many larger organizations are trying to centralize their budgets, managing everything from North America while allocating it to respective fields but maintaining centralized access. So what we’re seeing in the United States mirrors what we see in EMEA and APAC regions as well. Some of the APAC regions reflect consolidation and centralization of projects returning to global headquarters, many of which are based in the U.S., but it's fairly consistent overall.

Are you observing any signs of a Q4 budget flush, and for the second half of the year, do you expect to see more long-term contracts?

It's promising to see signs of positive seasonality trends. Our revenue grew sequentially by 14% from Q1 to Q2, with an increase of 1% year-over-year. That growth from Q1 to Q2 was something we predicted previously. Historically, we notice Q1 is typically the lowest quarter, followed by a jump in Q2, a slight dip in Q3, and a ramp-up in Q4. From what we've observed, we're encouraged by the positive signs in terms of seasonality. In previous years, results were flatter. Regarding predictions for Q4, while I can’t forecast what we’ll see fully, high interest rates, inflation, international tensions, and the upcoming election are influencing factors. Historically, we have seen that when interest rates are lowered, investors reward tech companies for growth, leading to increased investment in sales and marketing. Like what we’ve seen over the last year and half, we observe a lot of investments in R&D, and those investments need to yield returns. A historical trigger for positive trends has been interest rate cuts.

Regarding the product roadmap, where do you expect to invest post the Informa Tech combination after the close?

What we're investing in now for TechTarget shouldn't change significantly moving forward. In Q2, we announced our account intent offerings, a priority engine-based offering that provides a continuous stream of our first-party account insights into CRM and ABM systems. This is a separately purchased subscription that integrates into our clients' current workflows. Clients can identify, engage, and convert target accounts through programmatic and social advertising. We focus heavily on prioritization, ABM segmentation, and creation, delivering valuable insights for sellers. Additionally, we announced a partnership with 6sense Revenue AI platform for our joint customers. This partnership allows TechTarget's account insights to integrate directly into the 6sense platform, enhancing value for both offerings. You can expect to see more integrations around ABM platforms and other systems organizations utilize. As mentioned, Market Monitor reveals actionable insights and helps consolidate our offerings into a unified platform. We aim to assist our customers across their entire go-to-market strategy, from intelligence and advisory to product marketing and demand generation, ensuring we provide maximum value. Our plan is to continue accelerating these opportunities while creating a cohesive solution set for our customers.

Our next question comes from Bhavin Shah with Deutsche Bank.

First of all, in the past, you discussed the opportunity related to the replication of third-party cookies. Now that seems to be off the table from Google’s side. Will you need to adjust your go-to-market messaging moving forward?

First of all, the market has been educated over the last couple of years regarding the value of first-party versus third-party data. If anything, Google seems caught between a rock and a hard place regarding their actions and what they've been addressing with regulators in the EU and the United States. Over the past two years, conversations with marketers have reinforced that first-party insights or permission-based audiences are the gold standard for driving impact. Therefore, our messaging will naturally highlight first-party data as we provide value in that context. Changes may be minor, but we're effectively positioned to leverage our previous education efforts and the market demand for first-party data.

Just a quick follow-up. I noted in the shareholder letter that you didn't discuss the 2024 guidance. Should we consider that guidance no longer valid?

We are very confident that we will close the transaction with Informa Tech in early Q4. Therefore, there will be no specific numbers to move forward with. Our focus will instead be on the combined companies coming together in Q4 and beyond. We wanted to avoid confusion in the market regarding this guidance, and that was communicated and published alongside our Q3 numbers today.

At this time, there are no other questions registered in the queue. Thank you for your participation, and enjoy the rest of your day.