TechTarget, Inc. Q2 FY2025 earnings call

• Filed Q2 10-Q ahead of schedule, normal service resumed.
• Momentum building from combination, reaffirmed full-year guidance of broadly flat revenues with improving adjusted EBITDA margins of $85 million plus.
• In Intelligence & Advisory, consolidated brands under Omdia, eliminated product portfolio overlap. Repositioned NetLine product for new revenue source. Won 45 editorial awards in H1.
• Progressing with combination plan, reorganization plan to streamline areas, aiming for 10% global headcount reduction, on track for $45 million synergies by year 3.
• Product innovation with Informa TechTarget Portal launching in fall, with core priorities of unified experience, analytics for ROI, and integrating with customers' platforms, announcing 3 new integrations to reach 13 total.
• AI is seen as an opportunity, with use cases in content curation, data manipulation, and audience experience, leveraging AI for better audience discovery and consumption.

On a combined company basis, Q2 revenues were $120 million, a 1.6% year-on-year decline but a over 15.5% sequential growth from Q1. Adjusted EBITDA was $17 million vs $19 million prior year. In the Intelligence & Advisory portfolio, brand consolidation of Wards, Canalys, ESG and Omdia under Omdia brand was done, maximizing brand investment return. NetLine product was repositioned to target volume cost-conscious market, showing meaningful year-on-year growth. Editorial activity won 45 online B2B editorial awards in H1, demonstrating commitment to quality.

• Reaffirmed full-year guidance of broadly flat revenues and improving adjusted EBITDA margins of $85 million plus.
• Sequential momentum seen in Q2 over Q1 expected to continue into Q3 and Q4, not expecting Q3 to be lower than Q2 as in prior years.

Q: Maybe just starting off in terms of brand consolidation. Can you just discuss the trends you're seeing in Intelligence & Advisory as a large public competitor? Just put up guidance below expectations. I'm curious what you're seeing there in terms of turning customer retention for Omdia.

A: Josh, yes, thanks for the question. Generally speaking, I would say the kind of momentum and the trend continues. We're seeing our Intelligence & Advisory business perform to our expectations. We're seeing, I think, strong and continuing -- I mean, it's always a business that's had strong customer renewal rate both at a volume and a value level, and we're seeing that continue. There's really no change to that pattern. I think it's certainly fair to say that new business is probably where the market is the most competitive and challenging. I think that has always been true of this market as well because the Intelligence & Advisory proposition is one which is relatively sticky with customers because you really get deep into their workflows and into their strategic planning cycles. So I mean, I would say our outlook for the year is as expected, no change.

Q: As we think about the implied second half guidance, how much of the sequential improvement in revenue in Q3 is from any type of market recovery that you're assuming relative to the operational improvements that you've already highlighted on the call here?

A: Well, we're not making assumptions around market recovery in any way, shape or form in our guidance. Really, this is based upon the bookings momentum that we have, the revenue pacing momentum that we have. I think as I mentioned earlier before, one of the things that we moved really quickly to do is to get our management information systems combined, such that we had a kind of transparent and real-time view of bookings from customers and revenue from customers. And so we see that on a daily basis. So it really is all about those KPIs, not any assumptions around market recovery.

Q: Can you just review what did you do exactly to the product for NetLine to drive growth in the lower end, more class conscious end of the market?

A: Yes, certainly, Josh. I mean, actually the product itself, really, there wasn't a lot of change to the product itself, but there was a lot of change to the go-to-market strategy for the product. And we have built a dedicated go-to-market capability for the product and then positioned it in that sort of volume and cost conscious end of the demand market. And it is, therefore, really is about the emphasis of the go-to-market behind the product and the positioning of the product. The actual product itself, the engineering of the product itself hasn't materially changed.

Q: Just wondering, as you look at the guide and the implied return to growth in the back half of the year, can you give any either qualitative or quantitative commentary on bookings or on the pipeline that give you confidence in that return to growth?

A: I mean the best I would say is that our bookings momentum and our revenue pacing all support the guidance that we've given you and the confidence and its support of it. As you know, we are a business that are sort of really -- we've mentioned this in the past, actually, Jason, if think about the revenues in key categories, we have what we would describe as the subscription revenues. And the subscription revenues are rated over a year, and therefore -- and we have a high degree of visibility of those revenues because of that. The second sort of category of revenues are kind of consulting and our advisory revenues. These are project-related revenues where we recognize revenue on a level of effort basis against the backlog of projects that we've kind of booked and on the books. And then the third category of revenues are the kind of more transactional revenues, where we usually get about 90 days visibility through the pipeline in the business, through the sales forces' pipeline. And so when you take the mix of that, we have a relatively good picture of the business.

Q: As you look across your business today, what segments or what products are seeing near-term fundamental benefits from the AI category?

A: I think probably you'll see this showing up first is really in audience experience and how we actually -- how audiences discover and then consume content as they go through their buying journey. So if you think about our audiences, they are decision makers and influencers of material technology decisions. They require to be well informed and well educated prior to making those decisions. Indeed, we usually spend about 80% of the buying journey researching before they actually dialogue with potential vendor, shortlisted vendors. And really through AI, we have the ability to change the dynamic of the audience experience. So if you think about the audience experience today, we have over 220 B2B digital properties that inform, educate and shape the market on a daily basis. But the reality is that when you land -- when you discover one of those properties and you land on that property, no matter how you get there, you might get there through a search, you may get there through a direct link, you might get there through a brand that you recognize, largely you're consuming the content on that property. You may then be -- I mean, we obviously encourage our audience members to move around to the network to learn more, to become more immersed in the subject. But actually, that is something which is not -- is easier said than done if the truth be told. If you think about the use of AI and in particular LLMs, what that really allows us to do is to take all of the content across that estate of 220 sites and put it into a large language model and then allow our audiences to consume content by asking questions and receiving answers from our proprietary LLM, which we built within the organization. And indeed, we're in the process of consolidating all of the content from all 220 estates and, indeed, we will also add our research content to that as well. So you're fundamentally changing the audiences' experience in terms of how they discover and then how they consume and how they become educated in a topic. And I think that's certainly kind of probably, first and foremost, where we will see the influence. I also mentioned that a lot of what we do in our products is really data manipulation and analysis. So the whole notion of how do you derive intent signals from audience data and their consumption patterns is something that we'll be enhancing both in terms of quality and fidelity through the use of AI models as we move forward in time. So hopefully, those are just two examples of where we can see leveraging AI: first and foremost, from an audience experience perspective; and second of all, from a client value proposition perspective.

Q: As we get into the second half of the year, we're forecasting an uptick in profitability and cash flow. Just wondering what your balance sheet priorities are across like deleveraging, buybacks, M&A. Any key objectives from you?

A: Dan, do you want to... Daniel T. Noreck: Sure. I mean, as we think about the second half of the year, it's really going to be about identifying opportunities for the business with a focus on delevering and then also just building up cash.

Q: I saw you called out the Canalys business as part of the uptick in the back half. I'm not familiar with that. Are we talking about on the order of $1 million or $2 million or $3 million to $5 million? What does that conference business kind of kick in when it does show up in Q4?

A: Eric, yes, good question. So there is a series at the tail end of the year of what's called the Canalys Forums. The Canalys Forums are a prestigious news of conferences. There's one in Europe, one in Asia and one in North America, in the United States. It's really the kind of gathering of the decision makers and the influencers within the channel community of the technology sector. It's really where the distribution titans like TD SYNNEX and Arrow and where the giant resellers like SHI and Computacenter and others come together with the vendors to meet and discuss business. That all happens in really October, November. The quantum of it is -- I will never be able to give you a quantum. It's between $5 million and $10 million. I'm not going to kind of put too round a number on that, but it's in that range. And as I say, it tends to be -- it's what kind of give the Q4 revenues a bit of that slight skew.

Q: As far as macro demand, it looks like the brand and intent business, you characterized it as the most volatile. Are you seeing that across your markets? Or is there a difference between, say, North America and rest of the world?

A: No, I don't think there's any kind of material geographical differences there. I think the pattern is relatively consistent across Europe and APAC. I would say -- I think I've mentioned it, certainly within the business, kind of APAC revenues and the APAC bookings are where -- one of the areas where we've been seeing decline year-on-year. I mentioned earlier on that we've got growth year-on-year in some of our strategic bets. But by implication, other areas must be declining. And I think we found the APAC market challenging this year, but it's not localized to the proposition of brand and intent. I think that's more of a market than a product factor or issue.

Q: You had talked about wanting to be the -- work with your customers' platforms of choice. I'm familiar with marketing automation platforms that would be users of Informa TechTarget data, things -- HubSpot, for instance. Can you give me other examples of platforms that you're talking about integrating with?

A: Yes. I mean, typically, the industry sort of calls them CRMs, MAPs, SEPs, SEPs being sales enablement platforms. So you've mentioned, the CRMs of this world are Salesforce and Microsoft Dynamics, et cetera. The marketing automation platforms are the Eloquas and the HubSpots and the Marketos of this world. The sales enablement platforms are things like 6sense and Demandbase and others. Does that help?

Q: Your sense is you're pretty well there and you'll have it by the end of the year as far as being able to plug in with all of these?

A: I think certainly by -- at the time of the fall launch, where we're adding three new integrations to the portfolio, I think I said that would be 13 in total. I think that gives us really good coverage of all the major platforms that our customers choose and therefore is good. I mean, obviously, it's a dynamic world. I mean I sort of remember sales enablement platforms didn't exist 5, 6, 7 years ago. The world were CRMs and MAPs at the time, or customer relationship management and marketing automation platforms. So we're keeping an eye out on that. There are also a couple of what we would call lead management consolidators or lead management consolidation platforms, so the converters of this world and integrate. And they are also -- they're on our list. And so we -- this is really, I think, a clear commitment from the company to integrating into the ecosystems that our customers build and being easy to do business with and facilitates and being seamless to do business with.