Earnings Call Transcript - TTGT Q1 2025

Operator, Operator

Good afternoon. Thank you for joining today's Informa TechTarget Reports First Quarter 2025 Conference Call and Webcast. My name is Victoria, and I will be your moderator. I will now hand the conference over to Charles Rennick, General Counsel. Thank you. You may proceed, Charles.

Charles D. Rennick, General Counsel

Thank you, Victoria, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. Before turning the call over to Gary, we 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 a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials with the SEC free of charge at the SEC's website, 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 Gary's remarks, the management team will be available to answer questions. Any statements made today by Informa TechTarget that are not actual, 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 report filed on Form 10-K. These statements speak only as of the date of this call, and Informa 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 press release. And with that, I'll turn the call over to Gary.

Gary Nugent, CEO

Thank you very much, Charles. And of course, welcome, and thank you all for joining the call today. As always, investing the time is very much appreciated. If I may, a few words of context or introduction, first and foremost, to be clear, what we're going to talk about today are preliminary Q1 2025 results. They are subject to final review by our independent registered accountants. The matter that's outstanding is the conclusion on impairment and the consequent income tax expenses associated. And therefore, what you will have seen in our release is effectively a range, a high and a low as it's described, both on the subject of the impairment and the income tax expenses. It is our aim to file the Q1 results shortly after July 4 already. And from there, we expect that our Q2 will be filed on or before the 14th of August, which will put us back on schedule. And in that Q2, as you'll have seen in the release in those Q2 filing, we do anticipate recording a further noncash goodwill impairment, which reflects the current depressed market capitalization. If I can then just talk about the headlines of those preliminary results, I would first of all say that the Q1 revenues were in line with our expectations in our previous guidance and, on a combined company basis, revenues declined by 6% year-on-year. As we've highlighted, we see improving momentum as we go through the second quarter to the end of the first half, and we're expecting a mid-single-digit decline at the half year. In those Q1 results, we posted an adjusted EBITDA of $3 million. The second highlight is that we were reaffirming our full year guidance, and our full year guidance is that revenues will be broadly flat on a year-on-year basis on a combined company basis and that we will post improving adjusted EBITDA of $85 million plus. The third highlight I would describe as really a bit of an update on the combination program and the fact that we are combining our pace as we seek to lay the foundations for growth as we move forward in time for the future years. In particular, those initial foundations focus on establishing leadership and reporting lines across the organization to ensure that we give colleagues clarity early on and establishing our new operating model as a business. The next phase was really about us looking at the product strategy and the product road map and the product portfolio, and then simplifying our go-to-market structure and ensuring that we had clear market priorities and clear product priorities as we move forward. On that go-to-market structure and those priorities, we talk about our focus on our key client accounts and the investments that we've made to ensure that those customers are effectively addressed and give us the opportunity to uncover, identify, and address and then deliver against new business opportunities, new growth opportunities within those customers and improve the client experience. We also similarly talked about our market focus and a priority for us in addressing the cybersecurity sector. The last thing I would say about the headlines of the release is really about our ongoing confidence in the long term. We still believe that this is an incredibly attractive end market, the intersection of the technology sector and B2B marketing is a large $20 billion addressable market with many dynamics that we believe are favorable to our company and in our ability to compete and win in that market through the breadth and the scale and the diversity that the combination affords us as we bring the companies together. This confidence has only been reinforced in the recent customer conversations that we've been having. In particular, over the last couple of weeks, we had the opportunity to host a number of our most valuable customers at Cannes and Nice. Similarly, we also hosted our ROI Summit with over 130 customers in London. In all of those conversations, I continued to be encouraged that what we are proposing is really leaning into the needs and the wants of our largest customers. We talked therefore about where we see the growth coming from, where we see that long-term growth coming from, first and foremost, in increasing our penetration of the enterprise IT market. Then beyond that, we talked about the lever that is international expansion and the fact that 40% of our addressable market sits outside of the United States. We talked about the industry vertical technology market, which is actually demonstrating robust health at the moment. These are technology markets that are specific to given industry verticals, whether that be the automotive industry, the telecommunications industry, or the financial services industry, etc. We talked about our ability to create new products and bring those to market. Lastly, the fifth growth lever, which is as cash builds and our strength builds, our ability to deploy capital to grow inorganically. We also talked about in the release AI as an opportunity. We believe that the phenomenon of artificial intelligence is a huge opportunity for our business. Our own Omdia analysts predict that the market for artificial intelligent products, services, tools, and systems will be about a $190 billion market by the end of 2028. It's our role to inform, to educate the buy side of the industry as they seek to make procurement decisions. Of course, it's our role to then connect the sales to the industry to those buyers. That is the heart of our business, and therefore, having a new robust technology market is a fabulous opportunity for us. We also see a huge opportunity in terms of the nature of our business and what we do, and the use cases that exist for AI, both generative and agentic and other forms of AI, lend themselves to our ability to improve our effectiveness and increase our efficiency and to be able to turn that into competitive advantage in the marketplace. We are working diligently to do that. We also believe that we can see ways in which actually through the application of AI to our existing products and to new products in our roadmap, we can make those products more competitive, more functional, feature-rich, and more competitive. The last thing we talk about in the release is really something that is discussed regularly with our customers and with investors, and actually within the company as a whole is the way in which AI is changing how the world discovers and consumes information with a shift from traditional search to AI-enabled platforms. We are strengthening our capabilities in artificial intelligence engine optimization. We're learning that much of the skills and the knowledge we have in search engine optimization are highly applicable there. We will of course continue to invest in those search engine optimization skills because we believe they are still very relevant moving forward. But also a key point that we want to make clear is that we also continue to invest in the many other audience development and engagement strategies that we have at our disposal as a business. For example, the Industry Dive outbound newsletter model, the BrightTalk and NetLine partnership models that exist. Of course, access to the rich first-party data from Informa PLC and the events businesses underlines the strength and diversity of our approach to building and nurturing audiences and then creating that permission first-party data, which underpins all of our products and services.

Operator, Operator

Our first question comes from Joshua Reilly with Needham & Company.

Joshua Christopher Reilly, Analyst

Maybe just starting off here, what gives you confidence in the guidance being unchanged from the prior call that you can improve revenue sequentially in the second half of the year to hit the full year implied revenue guidance of roughly unchanged revenue? And how much of an improvement in the overall market demand has to occur to hit these numbers versus any operational factors that we should be aware of?

Gary Nugent, CEO

Thank you, Josh. It's good to hear your voice. First and foremost, I want to emphasize that we do not anticipate any significant changes to the market outlook within our assumptions and guidance. Our confidence largely stems from the operational improvements we are implementing and the discussions we’re having with our customers regarding their needs and intentions. As we pointed out in our release and earlier discussions, we acted quickly and have been executing the integration efficiently. We recognized there was some disruption, particularly in December and January, which affected the start of the year. However, we've observed positive developments as we've integrated our go-to-market strategy, especially focusing on larger clients in our portfolio. We've reallocated resources to better anticipate their needs, identify opportunities, and enhance the client experience. This approach is bolstering our confidence in the business. Additionally, we have repositioned the NetLine product to target the more cost-sensitive segment of the market, and we are seeing positive results from that initiative. Overall, as our organization stabilizes and we gain momentum, we're noticing an uptick in revenue and bookings, along with an increase in demand from our customers.

Joshua Christopher Reilly, Analyst

Got it. That's helpful. And then as you look at the Informa Tech assets, maybe you just hit on NetLine here for a second, but maybe dive into that a bit more. What, if any, changes are you making to either the go-to-market product or business structures that we should be aware of now that you kind of have the combined company operating as one?

Gary Nugent, CEO

Well, I think if we talk a little bit about on the product, let me discuss on the product front. I mentioned earlier on that we have been moving at pace in terms of the product strategy, the product road map, and part of that effort was the rationalization of the portfolio of products and services. We started early with our intelligence and advisory products and services. You will recall that as part of that effort, we have been consolidating what was the Canalys, Wards, and ESG products and services underneath the Omdia brand and the effort within the Omdia portfolio. We've largely completed that exercise, which creates a much tighter portfolio of products and services for the marketplace, one I think has much greater product-market fit, is easier to market, easier to sell, and easier for our customers to buy. That's certainly an effort that is largely complete. On the brand and content and intent and demand space, we have a similar exercise, which is underway. It's not quite as progressed, but it is well underway and has good momentum. You will see similar progress there. Of course, the other thing that we've been looking to do is how do we cross-sell all of these capabilities to address the needs of our customers across their product life cycle. While each of these individual portfolios of products needs to stand on their own two feet, the real power comes from our ability to address our customer needs at scale across their life cycle. The next effort really is about how we position them together, sell them together, and importantly, deliver them together in a seamless experience for the customer. That's the last thing I would say about products and services. On the market front, I think I've mentioned many times that about half of the addressable market, half of the $20 billion addressable market, really fits within the top 200 clients within the marketplace. The emphasis we're placing on serving them, both in terms of our deployed resources and the roadmap of our products and services and their needs, is a key part of the strategy.

Joshua Christopher Reilly, Analyst

Got it. That's very helpful. And maybe just one last question from me. You highlighted cybersecurity as a key market for you guys that you're doubling down on. What does that mean exactly? And how do you actually increase your market share in that end market?

Gary Nugent, CEO

Yes, absolutely. The cybersecurity market, in other words, the array of new and innovative large and small cybersecurity vendors is an excellent market opportunity for us. At the enterprise level, at the government level, on the buy side, we see no shortage of demand or interest in cybersecurity products and services. I think it's top of mind for almost every Board and government: how do we secure our data? How do we secure our people? We see that as a very exciting market. We also believe that the assets we have at our disposal, both in terms of the audiences we command and the brands we own, including the partnerships and the relationships we have with Informa, gives us a unique position to compete and win in that marketplace. It really is about assembling those assets in a way that we can help the cybersecurity vendor community accelerate growth in a very exciting market.

Operator, Operator

Our next question comes from the line of Eric Martinuzzi with Lake Street.

Eric Martinuzzi, Analyst

Curious to know if you've seen a response from your shift in focus in the go-to-market strategy towards the large customer accounts. In other words, since the start of the year, since you've been focusing in a more concentrated manner on large customer accounts, has there been an incremental lift in the pipeline from those accounts?

Gary Nugent, CEO

Eric, thank you. The short answer to that question is yes, I'm very encouraged with the response we've had to that, both in terms of results year-to-date. More importantly, as we look forward, we see within these large accounts many profit pools and budgets for us to address with the products and services we offer as a company. Most of these companies begin their product life cycle within their product business unit and product management and marketing. They are looking for us to help them shape their strategies, roadmaps, and market strategies, and there are budgets associated with that activity. When they're looking to release products, either new products or significant enhancements to existing ones, we help raise awareness for their brand and establish thought leadership in the marketplace. Each of these areas has different budgets associated with them for us to address with our products and services. We see that we have needs across this life cycle and higher visibility within the customers, which has led to some really interesting wins year-to-date, but also some interesting opportunities in our pipeline.

Eric Martinuzzi, Analyst

Okay. And in your press release and in your prepared remarks, you talked about artificial intelligence engine optimization versus search engine optimization. TechTarget has always had a terrific footprint relationship with the Google.com search results. How are you leveraging AI engine optimization to work to TechTarget's favor with those players?

Gary Nugent, CEO

The first thing is that the rules of the game are being written as we speak. In fact, you may argue that the rules are changing right now. So, we are keenly testing and learning in that space. The second thing is obviously that there are multiple rules of the game because there is no one significant player. There are many, like ChatGPT, Gemini, Perplexity, and Claude, among others. Therefore, we are learning how to navigate all of these dynamics. One thing we begin to feel is that our search engine authority seems to have a bearing on the rules of the game, and we are actively monitoring that. We believe that the same curiosity and innovation that took us to a leading position in search engine optimization will serve us as the new rules around these AI engines form. You can see that our content is often cited in top answers within many of these engines. Lastly, we fundamentally believe in the value of original, unbiased, authoritative content. As a former computer scientist, I learned that garbage in, garbage out is a crucial rule. AI and large language models are no different. We adhere to this rule and believe that ensuring quality input will be a critical factor in our success moving forward.

Eric Martinuzzi, Analyst

My final question has to do with the financial kind of high-level color that you've given. If I take the, let's call it $85 million on the adjusted EBITDA and roughly $490 million of revenue, that speaks to about a 17% adjusted EBITDA margin for the year. Certainly, Q1, I would expect that's going to be the trough here with the 3% adjusted EBITDA margin. But how should we think about the adjusted EBITDA margin progression through the remaining three quarters of the year? Because on average, we've got to come up with about 21% for those three quarters to achieve the full year outlook.

Daniel T. Noreck, CFO

Eric, this is Dan. From a modeling perspective, if you consider the seasonality of the business on a combined basis, Q1 is definitely going to be the lowest quarter. You're going to see sequential growth throughout the remaining period, which will enable us to achieve the adjusted EBITDA targets that we're forecasting.

Operator, Operator

Our next question comes from the line of Jason Kreyer with Craig-Hallum.

Jason Michael Kreyer, Analyst

Gary, wondering if you can provide any green shoots just in regard to the early stages of the combination, like any product categories or any business segments that you're seeing improved demand or higher interest from customers in those products or cross-sell opportunities.

Gary Nugent, CEO

Jason, yes. On an individual product level, the first example I would highlight is the repositioning of NetLine to the cost-conscious volume end of the market. We didn't particularly focus on that market before, but we're encouraged by the results as we've seen early adoption by customers. Collectively, what's been reinforced through conversations at Cannes and our ROI Summit in London is a new concept we call branded demand. Our customers realize they cannot isolate brand activities from demand activities; they need to integrate them. This realization nicely aligns with our ability to address their brand strategy and demand capabilities, putting those elements together. For example, we had a really interesting win where we combined branding and demand capabilities to serve customer requirements. I think our customers are increasingly recognizing the power of this integrated approach and leaning into it.

Jason Michael Kreyer, Analyst

Okay. Appreciate that. I wanted to maybe hop on or piggyback off the last question. I mean you gave some good indications of the revenue trends through the first five months of the year. Curious if you can give any color on how profitability is tracking through the first five months.

Gary Nugent, CEO

Yes. We haven't provided specific guidance, but if you consider the historical trend, higher revenue growth usually corresponds with high incremental margins. We expect to see that sequentially from Q1 to Q2 throughout the first five months.

Jason Michael Kreyer, Analyst

Okay. One last one for me, just on AI. Curious how the AI opportunity manifests today and how that changes over the course of the next year.

Gary Nugent, CEO

Forecasting the next year with AI is interesting. Its manifestation today is as a market unto itself, one that's becoming very active. I've been monitoring it for 4 to 5 years. Up until now, there was a lot of noise but not much capital was being deployed by enterprises or governments. That seems to be changing, creating an immediate opportunity for us. Moreover, we are exploring efficiency through deploying AI within our editorial, research, and analytics capabilities. We've identified many use cases across the business, some of which are currently operational. Most early generative and agentic AI applications align very well with our business nature and its functions.

Operator, Operator

That will conclude today's call. Thank you for your participation, and enjoy the rest of your day.

Gary Nugent, CEO

Thank you, Victoria. Thank you all.