Jane Freedman - Vice President and General Counsel Greg Strakosch - Chairman, Chief Executive Officer and Co-Founder Janice Kelliher - Chief Financial Officer Kevin Beam - President Mike Cotoia - Chief Operating Officer.

Kerry Rice - Needham Brian Fitzgerald - Jefferies Eric Martinuzzi - Lake Street Capital Markets Mike Malouf - Craig Hallum Capital Group Ben Axler - Spruce Point Capital Management.

Good day and welcome to the TechTarget Second Quarter 2015 Earnings Release Conference Call. 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 Jane Freedman, Vice President and General Counsel. Please go ahead Ms. Freedman..

On the call today, we have Kevin Beam, our President; Mike Cotoia, our Chief Operating Officer; and Janice Kelliher, our Chief Financial Officer. During this call, any statements made 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 future performance. Our actual results may differ materially from expectations. Please refer to our risk factors and other factors in our annual and quarterly reports filed with the SEC.

In addition, the forward-looking statements speak only as of the date of this call and the company undertakes no obligation to update these statements. Also during this call, we may refer to financial measures not prepared in accordance with GAAP.

A reconciliation of these measures to the most comparable GAAP measures accompanies our shareholder letter. With that, I will turn the call over to Greg..

Thank you, Jane. We saw a nice bounce back across the board in Q2. Online revenue grew 17%. IT Deal Alert revenue grew 42% and we added 30 new customers, bringing us to 260 customers in the quarter in for IT Deal Alert. International online revenue grew 23%. Core North American online revenue grew 9%.

Revenue from our top 12 customers grew 13% and revenue from the rest of our customers grew in excess of 20% during the second quarter compared to the prior year period. Adjusted EBITDA grew 36% to $7 million in Q2 2015 compared to the second quarter of 2014.

In addition, organic traffic grew more than 30% in the quarter compared to the respective quarter last year.

The foreign currencies issues that affected our customers' behavior in Q1 have stabilized but the situation is still challenging for our largest customers who get a large amount of their revenue internationally, there is less volatility which is better for us.

We are maintaining our previously issued 2015 guidance which forecasts approximately 13% online revenue growth and 25% adjusted EBITDA growth at the respective midpoints.

We remain very optimistic about our long-term growth opportunity and we were pleased that we were able to repurchase 410,439 shares for approximately $3.8 million out of our cash flow in the quarter. I will now open up the call to questions..

[Operator Instructions] Our first question comes from Kerry Rice of Needham. Please go ahead..

Maybe, can provide a little more detail around IT Deal Alert, maybe what you are seeing for revenue renewals on QSO and maybe and maybe early for Priority Engine, but more so on Priority Engine and Deal Data. How you see that pipeline building for the second half.

I know in the shareholder press release, you expected to contribute to full year results but maybe if you can give us some early indications on that, how that’s building? And then second question, you said that the FX is not an impactful, it’s a little less volatile and more stable.

But are you seeing -- anything else you can provide there about the [indiscernible] top ten or top 12 customers, they just feel more comfortable given that stability and maybe where you think that goes in the second half of the year here..

Sure. So I will take the second quarter first. So on the FX, with still a challenging situation for our largest customers, they get most of their revenue outside the U.S. The difference in Q2 versus Q1, I mean my view is in Q1 they were surprised by it. It got worse and they weren't expecting it.

So when they were in the middle of the quarter and they saw they were going to have revenue challenges, mid-quarter they cut their marketing budgets. So while it's still not a great environment for the largest customers and you can see that evidenced by their results where there is revenue declines or modest revenue increases.

What they expected in Q2 happened and so that creates less volatility for the marketing budgets, they kind of spend what the expected to spend. So still tough environment with our largest customers but we didn’t see the intra-quarter cut back we saw in the first quarter, so we saw the 13% growth from them.

In terms of Priority Engine, very good initial feedback from our customers. About two-thirds of the customers that are signing up for Priority Engine are signing up for annual contracts. And the other third that have been signing up for shorter periods of time, we are just trying to see renewals from them. So they are having very good success with it.

The pipeline is definitely building very strongly for Priority Engine, so we are very pleased with that. It's definitely that sales cycle is a little more elongated than I think we originally anticipated.

A couple of factors there is the integration with salesforce.com which creates -- you have to just talk to more people, you have to talk to the salesforce administrators, you have to talk to sales operations. And it's a product that can be used both by the marketing team and the sales team and the inside sales team.

So sometimes when you are navigating different accounts, you had to talk to different groups within there and they are figuring out where it should live budget wise. So people like it. We are getting a good response from it but in terms of sales cycle that's elongated a little bit. But, overall, we are very pleased with it..

Maybe just a follow-up on FX. Spending bounced back, so would you say that their spending was back to where it was roughly before they were surprised in Q1 or does it indicate that they were kind of surprised in Q1 so they cut their budget, but it seems like it actually kind of bounced back in what they are spending..

Yes. I wouldn't really say it's a bounce back. I mean I would just say, we didn’t see with what happened to Q1, was we saw cut and delays in the middle of the quarter which is unusual. So in Q2 we got some -- we recognized some revenue that we had a late start from Q1.

So if you basically look at the large IT companies results, I mean you will see that they are, as I said, some of them are still in revenue decline mode and the ones that are growing, it's pretty modest growth, single-digits. So the environment continues to be very challenging for the largest IT vendors and that’s reflected in their marketing budget.

So it's definitely a better environment in Q2 but I would say in general the large IT customer, our large IT customers are fairly cautious..

Our next question comes from Brian Fitzgerald of Jefferies. Please go ahead..

Bookings were in excess of $2 million versus $1 million last quarter. Is that -- what's the color around that full $1 million. Is that all from new customers? Maybe in other way, are these 12 buying substantially more than the first 30, or are there up sells going on from the original 30 as well..

Yes. Those are primarily new customers. So you can see we added more than 30 new customers in the quarter for IT Deal or in general. But we are -- Priority Engine is a new product, we only introduced it in the beginning of the year. So we are rolling it out to our customers.

So that’s primarily -- the additional bookings are primarily from new customers although as I said before, there is a handful of customers that had done it on a one quarter trial basis and those customers were having good success renewing them..

Great. And then maybe about the Deal Data customers, I think you said last quarter a couple of them were in short 1, 2Q testing periods. You just said the feedback has been good.

Are you seeing momentum around the Deal Data customers?.

Yes. I mean Deal Data and Priority Engine is basically the same data. So the way to think about it is people that buy Priority engine want to integrate it with salesforce.com and people that buy Deal Data want the data but they either don’t have salesforce.com or they don’t want to integrate it with salesforce.com.

So when I speak about priority engine, Deal Data is the same story..

Our next question comes from Eric Martinuzzi of Lake Street Capital Markets. Please go ahead..

Thanks. I had a question just with regards to what happened a year ago. I know you are not giving guidance for Q4 here but a year ago on ITDA we had a step down sequentially on ITDA. Now I know that you have got some cross currents going on too with the launch of some new products there.

But for modeling purposes, what makes the most sense as we look out to Q3-Q4..

Yes. So last year we had a big push at the end of Q3 where several large customers wanted to order a lot of -- ordered a lot of qualified sales opportunities which turned out to be unusual. What's different about this year besides qualified sales opportunities we have, the Priority Engine and Deal Data which is more than 10% of the revenue.

And then we are recognizing -- we will be recognizing revenue in Q4 that’s been sold in Q3 and Q2. In addition, we will be adding a modest amount but we will be getting some revenue from the new research products. So my expectation is that overall IT Deal revenue in Q4 will be higher than Q3..

Okay. That’s helpful. And then shifting over to the research product, I assume you have been test driving it with some people. Is there any early reads on the product. Obviously you have high hopes for it but just anything that you hadn't considered before that’s been revealed with the test drive..

So conceptually we are, again, extremely enthusiastic response from people that we are telling them what -- the type of data that we are trying to collect and people immediately recognize that it's very unique and it's very valuable and it just doesn’t exist. We are really -- the rubber meets the road when we start asking people for money.

And that will be happening at the end of this quarter into Q4. But we are definitely -- I think it's pretty universally accepted that what we are doing is very unique and very valuable and no one else really has the ability to collect this type of data. So we continue to be very optimistic about it.

And we are full steam ahead with collecting this data right now. So we are in full data collection mode. We are seeing good success with our users who want to share this data with us, we are collecting it and before this quarter ends, we are will be publishing our first research report..

Okay. And then lastly on the buyback, obviously you guys were active in Q2. You have to kind of walk upon a line here because I know you want to have liquidity in your shares but you also want to be active mopping up when you think they are undervalued.

Can you kind of give us a logic behind why you did what you did and maybe whether that [persists] [ph] Q3?.

Yes. So basically we are very bullish on the opportunity. We feel that the shares don’t reflect that opportunity. And so if we have to chose the ability to buy back shares that we think are very attractively priced versus liquidity, we are going to buy them back. So we will worry about liquidity later.

Our experience has been that we have been pretty aggressive at buying back shares for the last several years and our experience is when the price is higher, liquidity improves. So....

Yes. And certainly you have got -- you are generating the cash flow to pursue that strategy. So that’s it from me. Thanks..

Our next question comes from Mike Malouf of Craig Hallum Capital Group. Please go ahead..

With regards to the top 12 customers, being up 13%, that includes IT Deal Alert. I think so if you backed out that, can you give us a sense of what they grew just with the Core business product. I mean the Core online product..

Yes. I mean if you look at it knowing that they there are roughly 40% of our business. So you see that North American Core grew 9%, international Core 18%. That would give you indications.

I don’t know the exact number off the top of my head but that would give you -- those would be good indicators what's happening with those top 12 customers, not including IT Deal Alert..

And do you think that there was any pull forward with any kind of business from the September quarter? I think you mentioned a little bit of that on the international side..

From September quarter into Q2, no..

Yes..

No, I don’t think there was..

Okay. When you look out over the next couple of years, you sort of compare and contrast QSO versus Priority Engine and Data together.

Has Priority Engine become a bigger mix of the overall IT Deal Alert -- just trying to get a sense of how big this could be when you look out?.

Yes. I mean I definitely think it becomes a bigger mix over time. It's annual subscription, so the way people buy QSO, they are very focused on quarterly initiatives, what types of opportunities do they need to drive. Opportunities right now to get into their sales pipeline.

Whereas priority engine is something that customers would use everyday integrated in their workflow. So, yes, we are seeing that it was up 50% sequentially, Q2 versus Q1. It was up over 10% of the IT Deal Alert revenue. So, yes, we expect that to continue to be a bigger piece of the pie.

And then the intention on research is to sell that in annual subscriptions as well. So one of the big objectives that we have as part of the strategy is to build very significant annual subscription revenue stream from these data products. [indiscernible] just by their nature, some customers by them on annual basis but most of them don’t.

It doesn’t really blend itself to the way they want to buy them or the way there budgets work..

And do you think when looking at IT Deal Alert as a standalone, the QSOs will continue to grow year-over-year so looking out the next couple of years..

Yes. Yes. We are adding more customers. It's a great product, yes. That will continue to -- still relatively early in its life cycle..

Our next question comes from Ben Axler of Spruce Point Capital Management. Please go ahead..

I think maybe my question was answered a little bit in the prior question. But looking at the stock price and the earnings, your earnings have more than doubled year-over-year. Stock price is relatively flat year-over-year.

Is there an opportunity to maybe step up the buyback a little bit? I mean it looks like you bought back some stock but nonetheless there was still some stock dilution. So I guess the question is, is there an opportunity to be a little bit more aggressive with the buyback here..

Yes. So the way we buy through 10b5-1 plan, so that we can buy during close periods, and the way our plan is set up is that the lower the price the more we buy. So we are set up to be opportunistic. The challenge with company buybacks is just a lot of rules. There is volume limitations. You can't buy in the first hour, you can't buy in the last hour.

You can't buy on upticks. So there is a lot of rules that makes it challenging. You can't get this -- really, basically another way to say is, it's hard to get as many shares as you want because of all the rules that are in place. But we definitely plan to continue to be aggressive and more opportunistic, more attractive to [share's price] [ph]..

Great. And perhaps given the dynamic of the cash flow, which changed a little bit, you are getting more annual subscription with the IT Deal Alert. Again, there is more stability.

Would the company ever consider initiating a dividend?.

Yes. So it's something that our board considers on a regular basis in terms of we do have significant cash flow and we are always measuring reinvestment versus buyback versus dividend.

So there is no -- none of those are -- we are going to do what we think is best for shareholders to sell -- a large amount of shares are held by management and board members so we are going to continue to do what's best for shareholders. And there is not any -- there is no religious issue for us on dividend versus buyback.

It's just when you kind of do the accretion analysis on the math on the buyback, where it is at current prices, it makes that a very easy decision..

We do actually have one extra follow-up question. This question is from [Aria Cole of Cole Capital] [ph]. Please go ahead..

Two questions for you. You indicate in your letter that the pipeline for IT Deal Alert is robust.

Is it possible to just give us a little more color on what do you mean by robust in terms of maybe how much the size of the pipeline in terms of dollars? What's the change like a year from now -- from a year ago or so?.

Yes. So the pipeline I was referring to, specifically was Priority Engine, which is a new product. So it didn’t exist a year ago. But basically it's new product. We are launching its annual subscription, so some of that sales that we get today, the revenue recognition is deferred.

But we stated that it was -- with 50% sequential growth in the Q2 versus Q1. And if you kind of look at past shareholders as you see that we booked more than million dollars in the quarter. So I would expect those types of booking rates to continue..

Okay. And then secondly, regarding your top 12 large technology customers. Clearly you have valuable services to offer them but in order to grow your sales you have to displace spending in those companies because their budgets are more constrained.

Have you come up with any sort of new tactics for how you can increase the odds of winning deals by displacing spending elsewhere inside those enterprises..

Yes. It's really all based on our IT Deal Alert and our purchase intent data. So our sales value proposition has changed a lot because now a lot of our regeneration products are branding products, are all geared off of us having the ability to identify which accounts are active in the market.

So you can just be much more targeted at your branding programs. You can go specifically to people that are in the market. Lead generation programs can do that and people obviously want to do branding lead generation outside of that as well, looking for broad things.

But the whole selling proposition has changed has a lot over -- you know we are using our position as to having, owning the best purchase intent data in the IT market to our advantage to help the other product lines..

Assuming there are no further questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a great day..