TechTarget, Inc.
Q4 2013 Earnings Call Transcript

Published: 13 Feb 2014

[Operator:]

Good afternoon, everyone, and welcome to the TechTarget 2013 Fourth Quarter Earnings Release Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Mr. Bob Kellegrew, General Counsel. Mr. Kellegrew the floor is yours sir.

[Bob Kellegrew:]

Thank you, Mike. Before I turn the call over to Greg I want to remind everyone on this call of our earnings release process. As you saw we issued our press release today at around 4

[Greg Strakosch:]

Thank you, Bob. We look forward to returning to growth in 2014. We are forecasting double-digit revenue growth and at least 50% adjusted EBITDA growth in 2014. While we remain cautious about the general health of the IT market we are very excited about the opportunity that our proprietary Purchase Intent data provides us to build a meaningful business on top of our core online marketing business. In addition we are confident in our ability to continue to grow our International business by 20% plus. As always we remain focused on carefully managing expenses, investing appropriately and maintaining healthy cash flow to drive shareholder returns. I will now open up the call to questions.

[Operator:]

Thank you, sir. (Operator Instructions). The first question we have comes from Marco Rodriguez of Stonegate Securities. Please go ahead.

[Marco Rodriguez:]

Hi, good afternoon. Thank you for taking my questions here. I was wondering if you could talk a little bit more about IT Deal Alert and in your prepared remarks you talked about the long term strategy of migrating customers to enhanced subscription model. Can you talk a little more detail exactly what you are going to be doing there to incent them to do that?

[Greg Strakosch:]

Yeah so what is happening right now with customers, because it’s a new product they are testing it on a quarterly basis and then as we are going through some early first renewals they are still in touch mode but what we have with pricing in place that if people signed up for an annual subscription at a time there’s a 15% discount. So I think that second half of this year and into 2015 after people kind of get comfortable with the product and figure out what the right run rate is for them we’ll start to have success migrating people to annual subscriptions.

[Marco Rodriguez:]

Got it. And then in terms of IT Deal Alert can you maybe share some additional feedback that you are getting from customers that are still kind of in the testing phase, are there any sort of overriding themes or any feedback that had you making alternations to the offering?

[Greg Strakosch:]

Well the feedback has been very good so the first feedback that we are getting universally is that the data we are providing is extremely accurate. So companies are matching it up against their pipeline and they are saying that we have identified deals in their pipeline and then they are contacting accounts that are not in their pipeline and they are also finding that there is deals that are happening there. So the initial feedback is that the data is very accurate and these are deals that are in process so sales teams are very hungry to get these types of opportunities so the feedback that we are hearing from sales teams and through marketing teams is that they very much like the opportunities that we are providing for them and we are having conversations with our customers about other segments. We have this product in about 60 segments. Most customers are testing it in one segment but many of our customers can eventually buy more than one segment. So the key thing is first goal to get people to test and then once they test and seeing success try to upsize the amount they are buying from us.

[Marco Rodriguez:]

Got it. And just out of curiosity here on the refresher you are going to have for the self service offering any color you can provide on what that’s going to look like?

[Greg Strakosch:]

You know we haven't -- obviously we are going to announce in the next couple of weeks but that’s going to be an annual subscription product. We’ll let people do a 90 day test but there won’t be any ability to do quarterly renewals. All renewals after the 90 day test will be annual and it’s going to be a product that is going to be fully integrated with Salesforce.com which is definitely something that makes it more useful for most of our customers and we are very excited about this product. We think that it’s going to be an offering that’s going to really hit a need in the marketplace.

[Marco Rodriguez:]

Got it. And then in terms of the overall guidance for IT Deal Alert I think if I wrote it down correctly there's about a 3X you are going to triple there in fiscal ’14. Can you talk a little bit about the major assumptions or drivers you are looking at to arrive at that conclusion?

[Greg Strakosch:]

Yeah so we have about a 1,000 customers. We sold it to about 100 customers so far. So the first assumption is that we’ll continue to penetrate new customers. The second assumption is that we will have a very favorable renewal rate from those customers and the third assumption is that we’ll be successful in upselling customers. So if they start with one segment we’ll be able to get them in some -- more than one segment. So while the product is still very new we don't have hard metrics against things like renewals and upsells, the early indication on the accounts that have gone through the renewal process is very favorable. So it keeps us -- let's just be optimistic that we'll have good success against all three of those metrics. And so we basically need those things to happen to continue to grow it and I'm sure you saw in the Shareholders Letter, we did say that we are forecasting 20% sequential growth from Q4, '13 in to Q1, 2014. So to have that type of healthy sequential growth we need to have success against all three of those metrics.

[Marco Rodriguez:]

Got it and last quick question and I'll jump back in queue. On the international side, the plans that you have laid out that in the letter for 2014, is there an assumption there that you are scaling operations or is that guidance just kind of a function of your existing footprint just right along with the overseas online growth rate?

[Greg Strakosch:]

Yes. So it's a combination of both, but we are continuing to add sales people outside the U.S. So we have added additional sales people recently in Singapore, in Australia, in Germany and France. So we continued to add sales resources to further penetrate our customers and tap into those international budgets.

[Marco Rodriguez:]

Got it. Thanks a lot guys.

[Greg Strakosch:]

Great. Thank you.

[Operator:]

Next we have [Jeff Miles of Corbia Capital].

[Unidentified Analyst:]

Great. Thanks guys. Greg, maybe talk a little bit about the expected seasonality for IT Deal Alert I mean do you expect to have similar seasonality to your core business or it won't be so much that seasonality?

[Greg Strakosch:]

Yes. I think that we do expect similar seasonality and basically that is for most of our customers on a calendar year, and Q1 is a slow starting part of the year; budgets and marketing plans aren't fully baked at our customer yet. A lot of marketing spend is around new product launches and Q1 is kind of slow in that area, tends to be more in the spring and then September through the end of the year. So I think that you will see some of the same seasonality. Frankly, one of the reasons that we are very interesting in migrating this to annual subscription to kind of even out some of that seasonality and put more predictability into revenue stream.

[Unidentified Analyst:]

Got it. But the 20% sequential growth you are forecasting for Q1 is inclusive of whatever trends in seasonality that are there?

[Greg Strakosch:]

Correct. We took out into account when we built that forecast.

[Unidentified Analyst:]

Got it. Okay. And then what are these events business I mean is there shrinking is there, some future disposal of that business or what's the future of that business?

[Greg Strakosch:]

Yes. I don't think we will disclose it and we definitely de-emphasized it. We took some more events off the calendar in 2014 versus 2013. So three good things about events are 60% gross margin, so it's very profitable. We get paid in advance and then the most important strategic rationale is on all of our online product we are premium priced and the attendees of our events are the members of our website. So let's our online marketers meet end-to-end see the high quality of our online audience and helps us cost justify that premium. So I think we will always have an event business, but where we are really focused on is doing events that are easier to do and all events are easy but they are easier to do in terms of attracting audience and attracting sponsors.

[Unidentified Analyst:]

Got it. If I just look at calendar 2014 against calendar 2013, what sort of decline would you expect to see on percentage basis in the events business?

[Greg Strakosch:]

Yes. I mean, I think events we would see somewhat to minus 10% to flat.

[Unidentified Analyst:]

Got it. Okay.

[Greg Strakosch:]

Thanks Jeff.

[Operator:]

The next question we have comes from [Shawn Risoli] of Needham & Company.

[Unidentified Analyst:]

Hi, there. Thanks for taking my questions. I had a few. You mentioned that most of the customers the IT Deal Alert customers are testing the service within one technology segment. Just wondering if there are any specific segments in IT that are seeing better traction than others and as you try to upsell other segments, which segments do you think would be better positioned for that upsale opportunity? And how would the economics change? I think you mentioned that each deal goes for 25K to 30K a quarter as you add on more segments how would the economics change?

[Greg Strakosch:]

So just I’ll take the economics question first. There is no discount for adding additional segments. So the only way to get a discount is by renewal subscription. So that’s 25,000 for 75 opportunities for one segment and they want to get two segments it's just two times that. In terms of segments that are popular I mean it mirrors kind of where there are pockets of strength in the IT market. So things like virtualization and cloud and those types of topics where there is a lot of activity but the 60 segments that we're in there are IT vendors in all of those spaces. So we picked those 60 segments because we think that all 60 of them will be viable.

[Unidentified Analyst:]

Okay and in terms of the 50 net new adds in the quarter can you give the geographic breakdowns of those, are they mostly U.S. based?

[Greg Strakosch:]

Yes it's predominantly U.S. based we were during the quarter we were in beta outside the U.S. but we are moving into full production in the UK at least in Q1. And we have roughly about 20 segments that are live in the UK in Q1.

[Unidentified Analyst:]

Great, and one more for me as you guide to your 20% to 25% growth internationally I know you are doing a lot in various geographies. But can you give us a sense for where you expect that growth to come from may be by sort of geography?

[Greg Strakosch:]

Yeah so it's in EMEA, first of all I would say we expect 20% growth in all three regions in EMEA, in Latin America and in Asia Pac. So in terms of size EMEA is our largest geography, APAC is second and Latin America is third.

[Unidentified Analyst:]

Okay, thanks for taking my question.

[Greg Strakosch:]

Right, you are welcome.

[Operator:]

The next question we have comes from David Cohen of Midwood Capital.

[David Cohen:]

Thanks guys, my question's been answered.

[Greg Strakosch:]

Great.

[Operator:]

We are showing no further questions at this time. The conference call has now concluded. We would like to thank management for your time and also thank you all for attending today’s presentation. At this time you may disconnect your lines. Thank you have a great day everyone.