Good afternoon, ladies and gentlemen, and thank you for attending today's TechTarget Report First Quarter 2023 Financial Results Conference Call. My name is Danielle, I will be the moderator for today's call. All lines will be muted during the presentation portion of today's call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. It is now my pleasure to hand the conference over to our host, Charlie Rennick, General Counsel. You may proceed, Charlie.
Thank you, Danielle, and good afternoon. Joining me here today are Greg Strakosch, our Executive Chairman, Michael Cotoia, our Chief Executive Officer, and Dan Noreck, our Chief Financial Officer. 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've posted our shareholder letter on the investor relations section of our website and furnished it on an 8-K. Following Greg's introductory remarks, the management team will be available to answer your 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 filings with the SEC. These statements speak only as of the day 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. With that, I'll turn the call over to Greg.
Great. Thanks, Charlie. GAAP revenue was approximately $57.1 million, a decrease of 16%. Adjusted EBITDA was approximately $17.6 million, which is 31% of revenues. Longer-term revenue was 41% of total revenue. Free cash flow was $14.7 million, which represents 26% of revenues. The technology market continues to be besieged by weak demand, widespread layoffs, and budget cuts. If that wasn't challenging enough, the leading technology bank failed in the quarter, which we believe increased negative sentiment among our customers. Our results reflect the challenging macro environment. I will now open the call to questions.
Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Justin Patterson of KeyBanc. You may proceed.
Great. Thank you very much. Two if I can. First, in the letter, you teased out some of your thoughts on AI a bit. I'm curious when do you think we can start seeing some of the benefits from AI flowing into the business and just to kind of frame some of the investment that you're making into it right now? Then secondarily, just thinking about EBITDA guidance for the year, you know, you noted that reinvestment is one of the few areas you can control in this market right now. How should we think about just the guardrails around it annual EBITDA guidance? Thank you.
Great. Justin, this is Mike. In terms of the AI benefits and the framework around some of our AI initiatives, we've been working with AI technology for quite some time, but we see an opportunity in the business. We recently announced the appointment of Paul Gillin to run our AI strategy, and we see, you know, several key areas that we'll see opportunities to help really accelerate the business. I think it's important to note that, you know, there's a lot of announcements right now around AI, and what you're gonna see is a lot of content being disseminated across the entire web, very thin content, not really specific, addressing common concerns and needs. There's gonna be a so-called content deluge, and that's gonna be out there in the market.
For publishers and strategic content providers like TechTarget, we believe it's a competitive advantage. We have a lot of insights, relevant insights, relevant content that we supply to technology buyers to help them do their research day in and day out. We've been in business for 25 years, coming up next year, providing technology buyers really strong content to help them when they're doing their research. Out of that content that we've invested, we've extracted and we've been able to maintain and gather really valuable insights at their buying team level, at the account level. What we see is the opportunity to help our customers action against the insights that we can deliver, A, in the product portfolio, in the product suite.
As you've known for years, we're kind of at the mercy of our customers to action against the data and the deliveries that we've provided to them in their campaigns. Now we'll be able to have very strategic, insightful next steps to help them action and trigger very specific email outreach, phone conversations, and then content strategy. As you know, our Content Enablement business is a very, you know, strong opportunity for us, and it's something that we've made some investments in around ESG and BrightTALK and TechTarget together.
We have the content that we provided on our editorial and analyst sides, but also our customers need to have an effective content strategy and be able to leverage that content strategy from our capabilities and pilot with AI as well, will help them provide that effective content strategy to engage with those buyers. We've talked about this before, the buying team demographic continues to change. I think we mentioned this in our last earnings call, that over 50% of technology buyers want an effortless experience, which means they really rely on content to make informed decisions about six, seven, eight-figure acquisitions that they want. They can't be fooled by thin, broad-based, irrelevant content that's not recent and relevant.
Being able to help our customers tie in those insights to help power and empower their content strategy will be an effective play for us that we have as a publisher and as a community with proprietary first-party data insights. We're excited about that opportunity. In terms of the EBITDA margins for the year, we talked. It's really important. We understand that the technology market is really challenged right now. I think you can see that through all the, you know, the announcements on the layoffs and budget cuts, and it's just throughout. You know, you tack on the collapse of Silicon Valley Bank that had, you know, 30,000 plus customers, all technology-focused, many of them VC-backed. It's challenging on that front.
In terms of EBITDA, we still need to make sure that we, you know, we've managed downturns in the past. We have a very effective playbook, and we believe there's still a really good opportunity to make the right investments in the right areas. One of them I just mentioned around AI. We can talk about some other ones later in the call around some of the product enhancements and what we're doing. We wanna make sure that we're being opportunistic. We will manage our discretionary spending like we have as part of our playbook for 24 years, and we will do a good job on that, and we have a track record on that. In terms of guardrails, you know, we're estimating about 30% EBITDA margin.
I think those are the right, you know, that's the right ballpark to assume, with the updated guidance and the go-forward strategy.
Great. Thank you, Mike.
Thank you. The next question comes from the line of Joshua Reilly of Needham. Please proceed.
Hi, this is Rob Morelli on for Josh. Thanks for taking the question. You know, kind of carrying on with that, the topic around Silicon Valley Bank, you know, how should we think about the impact, you know, from, you know, SVB influencing confidence among your customer base? Can you remind us of the exposure to venture-backed startups and, you know, have things improved, you know, subsequent to the quarter end on trends, you know, with these customers? Thanks.
Yeah, great question. In terms of the Silicon Valley, as you know, they were, you know, 100% focused on the enterprise tech market. A lot of those customers that they serve, which I believe is over 30,000, a lot of them were VC-backed firms. Our business has evolved in a nice way over the last several years in terms of our customer segmentation. If you look back at our business, you know, 10 years ago, close to 40% of our business was guarded through our, you know, the top 10 global accounts. Today that's, you know, below 20%. We have 3,000 customers, so you can, you know, imagine, like, we span across all customer sizes and segmentations in the enterprise B2B tech.
Silicon Valley Bank, you know, the economy and the When I say the economy, the macros, the technology-specific macro environment was challenging as it was. We noted that in Q4. We saw it in Q1. There's no surprises on that. You can see by the layoffs, you can see by the cuts in that we're seeing day in and day out, which is still carried into, you know, Q2. The Silicon Valley Bank brought another round of uncertainty and a lot of jitters to the market. If you can imagine those customers which we serve, we have a good size of our customer base that serves those smaller customers or VC-backed software-based organizations. They went through a very challenging period.
There's a lot of uncertainty and jitterness, I don't think you see a lot of the VCs right now ready to hand over another check where they wanna make sure that these companies are making the right decisions around their expenses, discretionary spending, making line item cuts. You know, as we are a premium player in the market, and we always want to strive to be that premium player because of our content investment, our first-party purchase intent data, those line items get scrutinized across all segments of our customer base, and that includes the VC-backed firms. We believe that that caused another jolt on a negative way to the economy, and I think we've all seen that. Everything you've read and you've seen through the technology landscape, it's that. We're dealing with it.
We're working with our customers to make sure we're dealing with it. I would also say that we talk about the enterprise tech market, and that is the worst performing sector right now in the markets. It's also probably the most sound long-term sector in the market, where we have the ability to see... You know, if you talk to 100 investors, I think 100 out of 100 would say the long-term viewpoint of the enterprise B2B tech sector is very strong and something that they would invest and bank on. That's important for us. Yes, we're managing through a downturn in the market. Our business is 100% aligned to enterprise B2B tech. We are gonna feel that pain. I think others that we talked to probably feel a little bit worse as well.
When that market turns around, we also capture the upside, and that's why we're making those investments that I mentioned earlier.
Got it. Thanks. You know, as you kinda mentioned, just the layoffs, you know, within the tech, you know, industry. Have you started to see, you know, some of those impacted land at new opportunities and, you know, have they started bringing you guys in, you know, as they were champions of your product, you know, at their last jobs, you know, in sales and marketing? Thanks.
Some of those people are still looking for jobs, so that makes it very challenging. The people that are staying with the company that maybe not were caught in the layoff are very hesitant. Again, this whole mood of uncertainty. When you're uncertain and you're hesitant, you're very cautious about spending even the budget that you have. You might see some pick-ups and some, you know, in terms of some pockets that we see, but the mood is very focused on uncertainty. Listen, I will tell you this, we have really good relationships, and we have a good brand, and we have a good, you know, recognition with our customers.
Typically, if somebody does get laid off and goes to another customer, and this has happened, they will call us to bring us in, and I can tell you that that's happening. The thing that you just wanna make sure of, some of those folks have not landed a job yet. They're looking for a job. The folks that have remained in their jobs that weren't caught part of the layoff are very hesitant in terms of making that additional spend or that investment right now until they see more clarity and visibility into their job and into the market.
Got it. Thanks for the color.
Yep.
Thank you. The next question comes from Bryan Bergin of TD Cowen. You may proceed.
Hi, guys. Good afternoon. Thank you. I wanted to ask a question on the outlook and kind of your visibility to it. I'm curious, can you comment on the macro assumptions that you've embedded here in the outlook through the second half of this year? Just any insights around your current visibility relevant to where you typically would be at this point of the year. I guess how much in that 2023 outlook is so, you know, signed versus a qualified pipeline or you have to go get still? Thanks.
Yeah. Thanks, Bryan. I mean, we take a look. I mean, it is, you know, as we look at Q2, and then like you mentioned, the second half, we look at what we have booked right now and what we have visibility into. We look at all those dynamics on it. We also are taking into account like the current environment, like the behavior that we're seeing with customers. Now if that turns more for the positive, you know, there could be some upside in that number. You know, every time that we think that there's gonna be, you know, we're hoping that things are gonna be improved, like you said, nobody accounted for the Silicon Valley Bank collapse, right? I don't think people fully understand. I wanna make sure people understand that they were 100% aligned to the enterprise tech space.
We are 100% aligned to the enterprise tech space. You know, we see that. In terms of that, we look at what we have booked, the conversations that we're having. You know, typically you've seen the cycles where Q2 is bigger than Q1, Q3 is pretty even with Q2, then Q4 really ramps up. I think 6 months out is really hard to determine going into Q4 right now. A lot of what we are providing in terms of our guidance is what we see now because it's very... it changes pretty fast. In the last five or six months, it's pretty consistent with the tech market pullback, and that hasn't changed. It's hard to give you a...
I don't wanna say crystal ball, but like, here's when I think things will get better because based on what we've seen right now, the tech market is in a lot of uncertainty, doubt, and there's a lot of genuineness on this.
Okay. No, understood. Makes complete sense. Just a follow-up. The shareholder letter talks about new product capabilities for Priority Engine, so I think focused on some integrations with other platforms and related workflows. Can you just kinda tease that out a bit more on what you're working on there?
We've made some announcements. You'll see a lot of announcements over the next month and a half to two months in terms of what we're doing. Let me give you some feedback of what's going on. A lot of it's focused on, A, number one, our tech-enabled integrations that really will allow our customers to leverage our proprietary first-party intent data at the prospect and at the account level, not only within their CRM and marketing automation platform, but within other platforms, whether it's, you know, their homegrown platforms, intent providers, ABM platforms that power other sales and marketing campaigns.
That's really important for us because it's key to make sure that our customers have access to the data that we supply, the proprietary data, whether it's in their own, you know, whether it's in the Priority Engine platform, whether it's in their CRM or if they have other platforms that power, you know, programmatic or nurturing campaigns or XYZ. Working with our customers as well as some of the partners throughout the community is really important for us. We're also gonna be releasing features that will improve Priority Engine as a direct workflow tool, including enhanced email alerts that will help both sales and marketing have very specific and relevant and real-time information about how they take action against.
For example, being able to alert the marketing and sales team that XYZ organization was on your website, and not only on your website today, but what pages they were on your website. On the marketer side, they can then trigger within their workflows, whether it's in their own marketing automation or through another platform, ways to target those organizations with the appropriate message. Also, being able to alert to say, and again, very unique, at the individual prospect level, that this new member of the buying team became an active prospect on the technology initiative that you sell and that is in your respective territory. Being able to promote that to our...
You know, push that out and that information out to sales reps provides them a very tangible, easy, and laid out timely action to engage and personalize their outreach, whether it's, you know, sales or on the marketing side. We've talked about in the past, and we're rolling this out as well in announcing this, our tighter Salesforce integration within our customers' CRM around Salesforce, also the marketing automation, with bi-directional data analysis and workflows. Why we're bringing this up is because we wanna make sure that we're tied to the opportunity data, and we can identify investments, you know, the TechTarget investments and show TechTarget investments that we've identified prior to the opportunity becoming an opportunity in our customer Salesforce. We've identified it.
Post opportunity creation date, how have we accelerated that opportunity right in front of our customer sales and marketing departments? Those are really key. The one last thing which I'm really excited for, and again, this is again, both for marketing and sales users. We'll be updating and enhancing our visualization around account activity dashboards and timelines. It's really important that we can show our customers the investments they've made within TechTarget are working. When you have a look back on a visualization, in a visualization platform that says in the last 9 months, here is how your investments in TechTarget have engaged with buyers, how we've identified the buyers, and how you progress the buyers right in front of them, which again will allow our customers to trigger the most actionable and relevant next steps, is really important.
Stuff that we've been working on for quite some time, and we'll be announcing that. As you can see, our product investments enable customers, A, to leverage the data across any and all their platforms that they use to go to market, increase the usage and reliance with sales and marketing to see results, and to show attribution and ROI. Those are the three focus areas that we are really honing in on our priority and in our platform investments.
Okay. Appreciate all the detail on that. Just a follow-up on it. Are you at a point where you're able to, on the other side of this, leverage the investments you've made here, potentially, you know, into next year from a margin standpoint?
Yes. Our goal on that is to make the investments now during the down economy where everybody's getting impact, some worse than others that we've seen, put the right investments in around the product, the content strategy, and a couple other key areas. As this market turns, which we all know that the enterprise B2B tech market in the long term is going to be a strong market that still has the thesis of modernizing their sales and marketing departments, leveraging first party data, leveraging other data sets as well, and making it more effective for sales and marketing departments. This will help with our long-term growth, margin expansion, and what we've been talking about for the last five years.
Okay. Thank you.
Thank you.
Thank you. The next question comes from the line of Bruce Goldfarb of Lake Street Capital Markets. You may proceed.
Hi. Thanks for taking my call. Just a question. Like, in the shareholder letter, you highlighted strategic investments. Are there certain technologies or areas that you have like a sort of a shopping list for, that you're kinda targeting?
In terms of investments, on the last question we just discussed at length, was the investments we're making into the Priority Engine platform and capabilities around integrations, around usage, around tracking, about ROI. That's one of them, Bruce. We're also seeing some investment. We're making some concentrated investments around our content and content enablement services. As a business, we've seen, and we've seen throughout the market, that today's buyer, enterprise B2B technology buyer, wants to spend less time working and dealing with sales reps and vendors and want more time to research with relevant content on their time and on their dime.
Making sure that we have the right content that's attracting those buyers, but then helping our customers put an effective and thoughtful content strategy together through our investments with ESG, BrightTALK, as well as TechTarget, and leveraging some of the information we talked about around our AI capabilities to help accelerate our customers who have access to the most relevant content that will engage with buyers at the right time, is really key. Vendors that do not have a content strategy, an effective and thoughtful content strategy, will miss out on this because the buyers of technology do not wanna rely on technology reps, vendors. They wanna have information on their time. I would just say in the other investments that we look at, we're always looking at. Can you guys hear me?
Yes. Yes.
Okay. The other investments that we're making is we're always evaluating our M&A capabilities and our M&A prospects across the content, data, and technology-enabled audience sets. We're gonna continue to work on that.
Great. Thank you. Then how would you compare, like, same customer sales metrics, you know, sort of a same sort of sales basis for this year versus last year?
Well, what we do is we disclose that on an annual basis. That was in our February numbers, and we will report on that next February as well. We do it on an annual basis.
Great. Thank you. Those are all my questions.
Welcome.
Thank you. The next question comes from the line of Kash Rangan of Goldman Sachs. You may proceed.
Hey, guys. This is Jacob on for Kash. Thanks for taking the question. I'm a little late to the party. I apologize if this was touched on already. One thing I wanted to touch on was, as generative AI has become a lot more topical, and the use cases have become a lot more apparent and seemingly widespread, right? I mean, we saw Chegg down like 50% the other day. Are there implications around TechTarget? I mean, like, are you working to implement it into your product offering? How are you viewing it as, you know, something of a competitive differentiator or something that might close the moat of what TechTarget offers? Can you provide any color around that?
Absolutely, Jake. We had brought this up earlier, but I have no problem readdressing this. In terms of AI, we've been leveraging AI in our workflow and in our investments over the course of several years. We see companies like TechTarget, publishers of relevant, thoughtful content and originators of content, actually have a competitive advantage in this market right now. You know, there are other, we'll say, content providers that are, you know, or sites that might be clickbait anglers and trying to get more paid views and traffic. That's really not our ballgame.
We believe that publishers that spend, have spent years on investing in quality and thoughtful content to attract a very engaged, relevant, and recent audience that can then extract very powerful and proprietary first-party purchase intent insights, have a huge competitive advantage over other companies in this space. On that side, we feel very competitive. Leveraging those first-party purchase intent and our proprietary purchase intent insights will absolutely help our customers in terms of what we're embedding or gonna be rolling out and announcing down the road inside of our products. For example, we have always relied or been at the mercy of our customers to follow up, make sure they're leveraging our data, making sure that everything is being done. That's hard when you hand that off.
To be able to leverage our first-party insights and then provide a recipe, very specific recipe, and trigger action items to say, "Mr. Sales rep or Mrs. Sales rep, you need to communicate with this buying team member whose insights are this, their entry points are this, they're trying to address this pain point, and you have the information to do that," is gonna be really relevant. Because technology buyers, they're smart. They're spending five, six seven, eight figures on these app purchases. They want relevant, insightful information, and they want really good outreach in terms of when vendors are outreaching to make sure they understand their pain points, their needs, and to address that. We have that data. Now, to make sure that we're actioning that data to put into our customer's workflow, that's gonna be beneficial.
The other thing that's gonna be able to help is help accelerate our Content Enablement services. Our customers need to have a content strategy on the marketing side, product marketing, field marketing. To be able to take the insights that we have, help power and help generate more content that's gonna be personalized, specific, targeted to the technology buying teams at scale, is critical for on our side and for our customers.
Okay. I guess just a quick follow-up, though. From my perspective, if a customer can maybe more easily generate their own unique content, using generative AI and associated technologies, does that sort of phase out the area of business that TechTarget offers that service in? Like how should we be thinking about that, if that makes sense?
Yeah. For the customers are not publishers of content. They produce, you know.
Okay.
They spend an hour and get a technology. They don't have the insights into 29 million opt-in, you know, B2B professionals who are looking at the most deep and relevant content around 100 specific market segments, where we also marry up the vendor content, the peer-to-peer content, our BrightTALK community that has all the engagement. They don't have access to that. I'll tell you can't fool technology buyers. Like, it's gotta be relevant, it's gotta be real, it's gotta be, it's gotta be, you know, trusted. Buyers want trusted sources of content. We have a great reputation on that. Again, I'm gonna go back to my original statement. Strategic publishers and content providers that really serve and invest in thoughtful and independent content will be served well in this space.
Okay. Okay. No, I appreciate that color. Thank you so much, Mike.
Yep.
Thank you. There are currently no additional questions registered at this time. That will conclude our time of question and answer as well as today's call. Thank you for participating. You will now disconnect your lines.