Earnings Call: Q2 2021

Aug 4, 2021

Good day, and welcome to the TechTarget Second Quarter 2021 Earnings Release Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Charlie Renick, General Counsel, please go ahead. Thank you, Betsy, and good afternoon. Joining me here today are Greg Strykosch, Chairman Mike Toya, our Chief Executive Officer and Dan Norek, 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 the 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 ks. 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 may be considered forward looking statements. These forward looking statements are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast. Forward looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our filings with the The company 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. We may also refer to financial measures not prepared in accordance with GAAP. A reconciliation of these non GAAP financial measures to the most comparable GAAP measures The company is our shareholder letter. With that, I'll turn the call over to Greg. Thank you, Charlie. We continue to enjoy positive momentum from multiple tailwinds, which is translating into broad based strength across all products, customer segments and geographies. Revenue grew over 80% in the quarter year over year. We are growing faster than we originally forecasted and today we are raising our annual forecast for the 2nd time this year. The revised upward range is included in our shareholder letter that we released today. Also today, we are announcing the acquisition of Xtelligent Healthcare Media, which is a natural extension into an important adjacent vertical technology market. I will now open the call to questions. And the first question comes from Aaron Kessler with Raymond James. Please go ahead. Okay. Thanks guys and congrats on the nice upside. A couple of questions. First, any insights you can give us, I didn't see in the shareholder letter, I believe it's in the 10 Q, North America versus international performance. And then, on the Xtelligent Acquisition, if you can talk a little bit maybe the monetization plans. I think you said you'll kind of plug that into your platform, but just a little bit more details how you May be integrating that given it's kind of different vertical within healthcare. Thank you. Great. Thanks, Aaron. This is Mike. Thanks for the question. Across the globe, both in North America and International, we saw outpaced performance than we had originally guided to. The real the tailwinds that we talk about in the shareholder letter in the momentum in the industry, 1, the transition from face to face events. On the international side, face to face events was pretty dominant in the market pre COVID. A lot of field marketing dollars were being allocated Face to face events and that has been shift quickly and that's going to continue to move to digital always on and first party purchase intent data driven. There's also a lot of privacy regulations and compliance across the globe, but in particular on the international side. And So having an opt in permission based audience through our own registration, through our own content vehicles, our customers really see the value in that net value continues to increase. And then Google's announcement of eliminating on third party cookies has really brought A spotlight on this, again, to enhance the privacy concerns in the opt in and people wanting to deal and engage with 1st party content. I'd say in the North American side as well, we're seeing, again, as we stated during the shareholder letter, there's a big focus For our customers to modernize their sales and marketing departments, and they want to do that with 1st party purchase intent data, And having that first party purchase intent data driven with our own active, relevant And segmented audience members has really driven the cake. I would say that we've seen really good growth Across all of our products, so our demand generation as well as our Priority Engine numbers, as we noted in the shareholder letter, Priority Engine grew 20% year over year across the customer segmentation, our Global 10 as well as all others And again across all the geos. And then for your second question, on the Exeligent side, this acquisition as we noted checked all the Original content, opt in permission based members and a large amount of first party purchase intent data. And we see the opportunity right now to monetize their purchase intent data into our Priority Engine subscriptions. I would expect that we'll be rolling out new segments in this market where healthcare intersects with IT, software and hardware. We have a really good untapped opportunity right now to grow that first party purchase intent data that Xtelligent brings to bear with the acquisition. So I think if you look at the strong increase in the guidance for the second half of the year here, how much of that is balanced between the Xtelligent acquisition, The core TechTarget business kind of outperforming or maybe even greater strength than you anticipated in Brightcalk? Thanks, Josh. In terms of the Exeligent side really doesn't factor into this guidance that we're doing. At the beginning of the year, we provided some guidance because we're operating and reporting under one number. Bright Talk and TechTarget is all of the same customers, same accounts. We have very similar offerings. They complement each other, but we're reporting on one number. And we originally gave Modeling guidance of 20% growth for Bright Talk and you have the numbers from last year in low to mid teens growth in Tech We're just seeing us accelerate across those original guidance or forecast measures. And again, just to reiterate, we're seeing that across All the product sides, as you've read in the shareholder letter priority engine, which was single digit growth last year at this time is now 20% growth And demand generation. So that's where we're seeing the growth based on what we originally forecasted, we're seeing the accelerants on those areas. Okay, great. And then just a follow-up on the Google delaying the 3rd party cookies removal from Chrome My sense is that's not a direct going to cause any direct loss of business in the near term. But did you have any pipeline building Customers that were looking to switch their intent data providers, they're maybe going to reevaluate the timeline of when they were going to make the change? Thanks. Great question. First of all, we see this as a very strong competitive advantage. And Google delaying it a year, We see that okay because customers really need to plan what their overall marketing strategy is going to be around intent data using 3rd party cookies versus 1st party cookies. I would say it's shown a bright spotlight on this topic. We're having a lot of customers, conversations with customers on this And they will continue to migrate from the use of 3rd party cookies to 1st party intent data, Contextually relevant and aligned marketing programs and that bears well for us over the next year, year and a half until it fully transitions. And the next question comes from Brian Bergin with Cowen. Please go ahead. Hi, thanks. This is Zach Azman on for Brian. Couple of questions. 1st on Priority Engine, certainly seems like the trajectory is stronger than what was contemplated last quarter When there was guidance on 15% growth in the second half, can you maybe give us some more color on expectations for the second half? And then On that note, maybe talk a little bit about Engine Express, an update on sales adoption there and any data points you can share as it relates to progress on Express? Great. Yes, Zack. If you look at our priority engine, so I'm going to bring us back to last Q2, as we got out of as we entered into the COVID arena, and you saw a lot of pullback in terms of customers committing to long term contracts. But what customers started quickly doing was shifting their face to face event budget to demand They wanted really tight contextual alignment with relevant active opt in first party members. As we grew the demand generation list of clients and revenue throughout Q3, Q4 of twenty twenty and then throughout the first half of twenty 1 of our playbook was to engage with those customers, make sure they're seeing value in the ROI from their demand generation efforts And investments with TechTarget and slowly migrate them into longer term subscriptions, annual subscriptions being powered by Priority Engine. When we spoke back in May, we expect this to be 15% plus growth. We exceeded those. Our customers are doing the migrations from shorter term demand generation to more integrated long term subscriptions. In terms of the second half, I'd expect it to be very similar in terms of numbers and pretty consistent with what we've seen in Q2, high teens to 20%. And I would also say that not all of our customers are back in terms of migrating from short term Demand generation programs to longer term subscription. So we're very bullish in the second half on that. We continue to execute and do well against the playbook. In terms of Priority Engine Express, as we mentioned, very early in the cycle, in the launch on Priority Engine Express, We've seen some really good momentum on a percentage wise, it's very high and overall dollar amount, it's still building its base in terms of Customer revenue and insertion order count. So we're really bullish about that, but it's really confirming that We have a really good opportunity in that SMB market that are really focused on sales use cases. A lot of those small companies Do not have elaborate sophisticated marketing teams or marketing systems, but they all have inside sales And they really want to identify which accounts and which contacts within those accounts that they should be mobilizing and prioritizing their sales efforts against. That's helpful. Thanks. And just a follow-up, looking at the P and Ls, operating leverage this quarter I was pretty impressed that actually SG and A and product dev was essentially flat quarter over quarter it looks like on an absolute basis. How should we think about investments here going forward and just leverage? I know you gave some guardrails on guidance in 3Q 4Q kind of back into things, it looks like 3Q will stay flat and 4Q expenses might pick up a bit. But can you just talk about a little more broadly about Leveraging the model and how should we think about this going forward? Yes, this is Greg. So OpEx will go up gradually in the second half versus the first half. We do about half of our employee base Gets reviewed on compensation increases in July and about half are in January. So that will Increase in response. But in terms of long term operating leverage, it's a great model. There's very little incremental cost of sales. So it's a model where most incremental revenue on a gross basis Drops to the bottom line. So we target around at least a 50% incremental EBITDA margin. So that allows us to reinvest Half the incremental revenue, so it's a model where we're able to reinvest at a healthy rate and expand margins at the same time. So this type of operating leverage that you see in this quarter and you'll see in this year is pretty consistent what you've seen with us for the past several years and what you can expect to see going forward. So as we've said in the past, as we continue to scale revenue, 40% adjusted EBITDA margins are we're going to see in the near term. And we think long term as we scale the revenue that 50% adjusted EBITDA margins are achievable. Great. Thank you. The next question comes from Patrick Kovel with Deutsche Bank. Please go ahead. Great. Thanks so much. This is Bob Anand for Patrick. Congrats on the strong performance in the quarter. Michael, on your shareholder letter, you mentioned some early cross selling efforts going well with Bright Talk. Can you maybe elaborate on this a bit? What are you where are you seeing some And maybe what's left on the product side to really drive additional revenue synergies? Right. Bob, yes, in terms of the cross selling efforts, as I mentioned, the acquisition of Brightalk just made complete sense for all the reasons that we talked about earlier. Content, The audience in the first purchase intent data, but even more importantly, the complementary product offerings, they really focus on webinars, videos, talks, They create a platform where customers can, an all inclusive platform, generate their own content, promote it, as well as create a demand generation system engine within that platform. Our reps we're all one organization, but our reps are walking the Brightalk reps into account where They're spending with TechTarget, but might not be spending with BrightTalk at a material level. And the BrightTalk reps continue to do a great job of walking TechTarget reps into those accounts That are spending on the Bright Talk product, but maybe not as heavily on the TechTarget solutions. And there is a huge high, I get it, fact, from customers. They want to make sure they have the right mix of media, content, vehicles out there to engage with the active buyers throughout the entire Search process and this combination is working well. It's working well in North America. We're doing it throughout EMEA We've rolled this out in APJ as well. We've seen it with really good success. I'm sorry, what was the second question you had on the product side? No. Is there anything left on the product side to really drive additional synergies in terms of any new product features that you need to come out with? Yes, very good. So, there are a lot of synergies on the product side that we're looking In the short term as well as the long term strategic product roadmap. Again, BrightTalk has Just launched their Bright Talks Central platform, which I call which I would refer to as an all inclusive content creation and demand gen vehicle for The marketers. We obviously have our Priority Engine platform that works across marketing and sales. Recently, we announced in Priority Engine that we are adjusting account level intelligence from the Bright Talk Member from the Bright Talk community into Priority Engine. We did this really to focus on a sales use case And what that has been able to accomplish in the short term, it has allowed our customer sales force to now have Double on average 2x the amount of accounts that are active within their respective territories that they can engage with. So now you have more reps Within our accounts, calling on more accounts within their territory that are active with 1st party purchase intent signals, which creates a larger engagement and consumption model of the TechTarget data and the Bright Talk data coming together. So we're keeping that on the account level right now. We're working on future roadmap strategies in terms of the platform, as I mentioned, from Priority Engine as well as Bright Talk Central. Teams are working closely together and we're really excited about the short and the long term on that. Got it. That's super helpful. And that segues nicely to my second question. Can you maybe just talk a little bit about the sales use case within some of your larger customers of Priority Engine? How has adoption been thus far relative to your expectations? And any data points that you could provide just highlights on the adoption you've seen thus far? Yes, that's a good question. Use case is going well. So historically, this has been a marketing focused Use case platform where marketers would have insights into the accounts as well as the active prospects at the account level, by segment and by geography. And marketers, this is still a big focus for us marketers that are looking to Mobilize against an account based marketing strategy ABM named account strategy, they want to increase their database. Sales is a different use case. So we rolled out our prospect level intelligence at the beginning of this year, where sales reps, if you think about their cadence, they will come in, they'll do a call blitz, They have a territory that they call into. Now it's enable them to rank at the individual prospect level who is most Likely to be prioritized first. So if I'm a rep and I came in on Monday morning and I'm doing a call blitz, I might have an active prospect We've identified in account A be number 1 to call into account B would be number 2 versus just focusing on the individual account level. And What that does is, it allows sales reps to customize and personalize the individual outreach, whether it's email or phone conversation when they reach out to that individual Buying team member and that has seen really good adoption. We've seen sales issues increased by 2x and we're Driving again very focused around the sales application in the sales use case. In this recent press release, Bob, we talked about the ingesting the account intelligence data from BrightTalk, but we also Expanded on our functionality with what we call inbound converter. An inbound converter is a technology that's And to Priority Engine that tracks the accounts that visit our customers' websites. And what we've now done As we expanded that intelligence and granularity to not only tell you what accounts visited your sites, but we're now identifying which pages On the customers' websites, those accounts are engaging with. Are they on product review pages, customer success pages, demo pages? So it helps prioritize the accounts. Then we marry that account data into Priority Engine to show which Individual active members within that accounts buying team are probably the ones that are engaging on those customers' websites. So what we're really doing is de anonymizing the account based traffic going on to our customers' websites And we're prioritizing which people they should reach out to within those accounts. And sales are seeing a lot of success on that. And we are focused on both on the sales use case On the marketing use case and features and functionalities on our next rollout or revision which will come in the late the latter part of the year in Q4. Got it. Super helpful. Last quick one if I could squeeze in. Long term revenue mix downticked slightly from 1Q. Is there anything of note impacting the mix Or was it just strong performance on some of the management side of the business? It's 2 things. The overall number grew dramatic, you know, Materially quarter over quarter. And if you look at the overall revenue dollars associated with long term revenue, they were up double digits quarter over quarter. So it's just related to the percentage is a little lower because the revenue was so much higher. Makes sense. Congrats again, guys. Thank you. The next question comes from Greg Burns with Sidoti and Co. Please go ahead. Good afternoon. What was the Xtelligent's trailing 12 month revenues and EBITDA? Greg, we don't report that for disclosure reasons. I can tell you it's The main focus of this acquisition was on the content, the opt in audience in the untapped monetization of first party purchase intent data. In the press release, we mentioned that the CEO of Xtelligent is a former TechTarget employee, spent 11 years here focused on our member and audience Acquisition methods and process. The focus on this number the focus on this acquisition was around the content, the audience and the Again, the potential in terms of first party person intent data and the ability to monetize that. We also really when we have a lot of good Shifts that we with organizations around the industry and we don't really get into any try to avoid any bid process. So what we see is value, again, around content audience and first party purchase intent data. We try to keep that really close to the vest. Again, this did not reach any of the materiality thresholds. We didn't have to disclose it, but we also want to make sure we keep a competitive advantage. So our competitors aren't seeing how we are trying to value potential organizations and we want to make sure it's fair to our investors. Okay. And was the healthcare IT vertical, was this something that you had your eye on for a while? And there are any other Kind of niche technology verticals that might be able to do the same thing, kind of plug them into your platform and expand the monetization opportunities? Yes, great question. In terms of the healthcare IT vertical, this is a vertical that we've been keeping our eye on for a couple of years. And the adjacent vertical, where healthcare intersects with IT and infrastructure, security, hardware and software just made all the sense in the world to us. We believe it's going to open the door to new customers, opportunities. As I mentioned earlier, we believe that we have an untapped Revenue opportunity with Priority Engine and bringing our purchase intent data onto the Xtelligent community. And in terms of other Verticals, there are some other adjacent verticals that are interesting to us and that we're keeping an eye on and Even Brighttalk, when we acquired Brighttalk, they have some audience and verticals in the FinTech space, asset management space. So those are definitely something that we are keeping an eye on now and moving forward. Okay, great. Thank you. Yes. The next question comes from Eric Martinuzzi with Lake Street Capital Markets. Hey, guys. This is Kevin on for Eric. Thanks for taking my questions. Just on the acquisition, and I know you just touched on it briefly in the last question, but Could you give us a little more color in terms of was this one of the larger players for content and audience in terms of the healthcare IT vertical or was it the kind of the quality of the stuff they're putting out there? I know you had a relationship with the founder and stuff, but what really Maybe size up the market is what I'm trying to get to. All right. This play was focused not on the Size, but on the target and the quality of the content in the audience and the untapped opportunity with monetizing the purchase intent data. There are a couple of big players out I think Becker held in HIMSS that is part of a non profit organization that has a big event every year. This was The reason why this fits so well is we know the folks over at Xtelligent, we know the type of content Approach which mirrors what TechTarget would do in terms of the enterprise IT market. We really value the opt in permission based audience members. Again, we talk about Eliminating 3rd party cookies, what's going to happen with 3rd party data, and we just see an opportunity to really monetize The large amount of purchase intent insights that they can generate on their sites due to the quality and the targeted focus of the healthcare market. Got it. Thanks. And then just a Bigger kind of question here. I know you touched on that letter, but the continued migration from in person events to online. Do you see that going is there any been flurry of more in person events? I know you mentioned international earlier in the call, but do you see any of that I don't see it coming back to where it was before or being anywhere near that. There's a couple of things The analogy that we use internally is when somebody moves from analog to digital, it's really difficult to go back to analog. But also When you go from face to face events to online first party intent driven type of opportunities, It's more scape allowed the office for 5 days, set up booths, have all these travel costs. And you're seeing that while we have to make this digital transformation, COVID accelerated that. We need to capitalize on that and we can grow scale and measure that more effectively. So I really see this Moving forward in a positive manner and again this bodes very well for what we've built as an organization. Thanks guys. You're welcome. The next question comes from Justin Patterson. So just curious What that future pipeline looks like? Then secondly, Priority Engine growth strong. You've got the new businesses coming in. How should we think about just what the normalized growth rate for TechTarget should be going forward? Thank you. Right. Justin, in terms of M and A, there is a lot of activity going on in the market. We've seen this for the You know, a couple of years. Up in registered members, 1st party purchase intent data and or complementary solutions like Bright Talk. Bright Talk checked 4 of the boxes on that. We look at a lot of organizations. We are very selective on what we're going to choose. It needs to fit that. I would say for every acquisition we've done, we've probably looked at 40 and we're going to continue to be selective We're not going to make a decision just to make a decision. It's got to really fit in the short and long term strategy and what we're really focused on as a business. And in terms of normalized growth, again, we beginning the year, we figured we provided that model of 20% Bright Talk in low to mid teens and TechTarget. It's early, but if you look at it and The trends continue the way they're continuing. We continue to execute on how we're executing. I would say this would be mid teens plus growth Moving forward mid to high teens. This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.