Jane Freedman - VP and General Counsel Greg Strakosch - Chairman Mike Cotoia - CEO Kevin Beam - President Janice Kelliher - CFO.

Jingjing - Needham Timothy O'Shea - Jefferies Louis Toma - Craig Hallum Alan Klee - Sidoti Eric Martinuzzi - Lake Street Capital Markets.

Good afternoon, and welcome to the TechTarget Second Quarter 2016 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. Jane Freedman, Vice President and General Counsel. Please go ahead..

Thank you, Laura. Before turning this call over to Greg Strakosch, our Executive Chairman, and Mike Cotoia, our CEO, I'd 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 have posted our Shareholder Letter on the Investor Relations section of our Web site and furnished it on an 8-K. On the call today, Greg and Mike will briefly summarize our results for the second quarter.

Following their introductory remarks, the management team will be available to answer your questions. In addition to Greg and Mike on the call, we have Kevin Beam, our President; 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 statements are based on assumptions and are not guarantees of future performance. Our actual results may differ materially from our 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 we undertake no obligation to update these statements. Also during the call we may refer to financial measures not prepared in accordance with GAAP.

A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures accompanies our Shareholder Letter. And now, I'll turn the call over to Greg..

Great, thank you. Our customers continue to embrace our proprietary purchase intent data as they try to take advantage of big data to make their sales and marketing organizations more efficient and win market share. We believe this creates a large untapped opportunity for us as our customers are in the early innings of this megatrend.

IT Deal Alert revenue in Q2 2016 was a record $8.4 million, up 45% from the same quarter a year ago, and up 23% sequentially from Q1 2016.

Our strategy to increase the amount of revenue under long-term contracts continues to move in the right direction, as we recognized more than $3 million of revenue from long-term contracts, representing almost 11% of overall revenue in the quarter.

We continue to see weakness from the five largest IT companies that are in the midst of or recently completed major corporate transactions. Revenue from those accounts was down $2.2 million in the quarter versus the same quarter last year, which accounts for the lack of growth.

We expect to see the continued weakness in spending from these large accounts carry into Q3. We are having a very good success with midsized companies, as revenue from that customer subset was up 12% in the quarter versus the same quarter last year.

Unfortunately we saw weak bookings in July, which is why we're being conservative with our forecast as we need more time to figure out if it's just an especially slow summer or if there's a longer term pullback of flood [ph].

As the short-term weakness that we are seeing does not diminish our long-term view, we expect to continue to use our strong balance sheet and positive cash flow to buyback our stock at attractive prices. I will now open up the call to questions..

We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Kerry Rice of Needham..

Thanks for taking my question. This is Jingjing on for Kerry. I would like to ask about international. You mentioned weakness across EMEA, APAC, and Latin America.

Could you remind us on the breakdown of revenue among these regions, and also give us more color on the dynamics of each of these regions, because the euro weakened during the second quarter, whereas the Brazilian Real strengthened? And also if you can comment on any impact you see or expect to see from Brexit? And any impact on that on the guidance? Thanks..

Okay, thanks. This is Mike. So starting on the -- in terms of the overall dynamics and market for the international space, the largest that we're seeing is from our five largest customers that Greg mentioned.

As you know, 15% of their business -- greater than 15% of their business is conducted outside the U.S., so those five accounts have recently gone through or are going through a major transaction right now. So there's been a lot of pullback.

And though we feel with in the North America, a greater percentage of our revenue is from those organizations in each of the GOs, in EMEA as well as APJ. So that pullback is -- actually we can feel it a lot -- we see the impact a lot more in those regions. In terms of your question on Brexit, I think what that brings is a mode of uncertainty.

And in this type of market when you have uncertainty, IT spending typically gets put on hold. And so that's not good for our customers, and it's not good for their customers either, so things get held up. And that's really to the slowness in the international markets, again, driven primarily by the five largest accounts..

And this is Greg. And the one thing I would add on that is our Latin America business is very small, as we just launched there directly recently. So the majority of our international business is Europe. About a third of the business is APAC. And Latin America is very small at this point..

Okay, thanks a lot. And a quick follow-up, so we understand the weakness among the largest customers, and you, typically, smaller companies have been a bright spot. But this quarter is down 5% year-over-year.

Do you see that result from the macro condition or is it you see some tightening from the VC [ph] capital, or any other reasons you would comment on? Thanks..

Yes, again, this is Mike. Well, I'd first say that the next 100 customer we saw very strong growth at 12%. And then with some of the smaller, we'll call them the next tier after the top 112 customers, I think we've all seen from the economic data that's come out and the GDP, hence a lot of the slowing.

These organizations who are funded or trying to get more funded will typically react pretty quickly, and pullback and hesitate, or even put some programs on pause until they see a little more of a -- a more clear of a picture in their forecasts. So that's what we're seeing right now in the short-term, and that's how they react..

Okay, all right. Thank you..

The next question will come from Timothy O'Shea of Jefferies..

Yes, hi. Thank you for taking my questions. So, nice spike this quarter with a 350 IT Deal Alert customers, and I just had a couple of questions on Priority Engine. So you guys note that revenue there more than tripled year-on-year.

So I'm curious, how important is that product to attracting these IT deals or customers? And then as you rollout Priority Engine in the third quarter internationally, just given the strength that you saw in the U.S., do you have a sense that international might return to growth in the third quarter based on that launch? Thank you.

And then I had a quick follow-up. Thanks..

Right. Tim, this is Mike. It's extremely important that we roll this out to attract some of these newer customers. When we rollout Priority Engine we enter and get into our customers' workflow, and we become very sticky.

As Greg mentioned in his introduction, that approximately over $3 million of our Q2 revenue was associated with longer-term subscription deals. That's important to us. It provides us greater visibility. It provides our customers access and insight to who's in market today, and it becomes part of their workflow.

And in terms of the rollout, we just introduced, and rolled out IT Deal Alert Priority Engine in EMEA last week. Very early, we had a very positive the first week is any true indication, there's the positive results that we're seeing. But again, very early to tell right now and time will tell on that.

But if it's anything like North America, we're expecting good results..

And this is Greg. The thing to keep in mind about the way we recognize revenue on Priority Engine, if we sign a one-year contract we'll only be recognizing the one, 12.

So I don't think we expected to have material contribution in Q3, little bit more in Q4, but we think that it will be a nice growth driver for us in 2017, and certainly that's one of the ingredients that we took into account when we stated that we are comfortable with neighborhood of 40% growth rate on IT Deal Alert in 2017, that was one of the pieces of the growth equation..

Okay, thank you, I appreciate the color. And then just quickly on guidance, you mentioned weak bookings in July, just curious how long do you believe it will take until you can determine if this is just a slow summer or maybe if it's a more of a broader pullback on spending? Thanks..

Yes, this is Greg. So, Q3 historically is always a little bit of a back end quarter, so historically July and August are somewhat so especially outside the U.S. So, Q3 is one of those quarters where September is really important, and so I think till we get to September and see what happens there and then of course Q4 is very strong.

So I think when we see September bookings and then Q4 bookings, this will have a much better sense. Just in terms of, and totally I think a lot of companies and the economy in general is in a little bit of wait and see with some of the political uncertainty of what's going to happen for Bexit, what's going to happen with the election.

So it's hard to say if that's how much of a factor that's playing if any, but certainly by through September and Q4 we will have a much better sense of what we are looking at..

Great, thank you..

The next question comes from Louis Toma of Craig Hallum Capital Group..

Hi guys, thanks for taking my call. Down the call ways I apologize if you already talked about this, but I am wondering if you could give us a little bit of insight.

You had nice accelerations in IT Deal Alert, if you can give us some color on how much of that was from IT Deal Alert research gaining traction and what your implied expectations are for that with your projections for the year in IT Deal Alert growth?.

Louis, this is Mike. We don't breakout the sub-products on this. I can give you some feedback on research, so far really good feedback from the market, still good long term opportunity for the organization. You know the unique value proposition from the buy site data is resonating with our clients, the pipeline is growing.

What we are seeing with our clients is they want more historical data and they want larger sample sizes. So as you know, as you've been following us for a while, we're just coming up on the one year anniversary of having a full year cycle of data for one topic.

But the clients, they want more data, they want more historical data and as the sample size isn't the historical data growth as we are seeing the pipeline growth, revenue will continue to grow in that as well..

Yes, so this is Greg. So, we are still very optimistic about the research business growing nicely pipeline building but he majority of the growth in Q2 was from priority engine..

That helps, thank you very much..

And the next question is from Alan Klee of Sidoti..

Yes, hi, on the topic of the top 5 customers to what extent, and since they are going through transformations, any sense of you of that as they go through those transformations and get done with them that that could then be a catalyst for spending picking up?.

We typically see when organizations, obviously and these are massive transitions and transactions, and when they get settled, so you know some have been closed but it takes a lot of time to get into the market and get their go-to-market strategy in place.

Some are on the verge of closing and even when they close, the next day they are not going to flip on the switch.

Typically these are positive moves for us because what our customers need, and our largest customers want to be is data-driven organizations and having the intent that we own that can really supply down and give them visibility into who is in market today is what they are craving for. So when that gets settled it's a catalyst for us.

Until then we are watching this, and we are staying close to the accounts but in the short-term as you can see it will have some impact..

Yes, this is Greg. Just to add a little color on that, our view is that these transitions are temporary for those customers and we have seen these lots of times in the past and typically we see spending levels rebound and grow.

And so I think we have been pretty consistent in our view that it is temporary and that is one of the reasons why we did the tender when we did, when we announced the $20 million buy back after the tender because we view that it is temporary.

We do understand that it mutes our results a little bit, which we think makes a good opportunity to buy back shares at attractive prices..

Thank you..

And next we have a question from Eric Martinuzzi of Lake Street Capital Markets..

And just a question about the uses of cash, I understand you obviously put a good chunk of it to work on the tender. You got some remaining buy back but just the, (a) is there an appetite for MNA and then (b) are there any properties that are of interest to you guys.

I guess (c) would be the allocation of that cash between the buyback and maybe going out and picking up some other property?.

Yes, this is Greg. I mean in terms of acquisitions we always have the view that to be opportunistic and if good properties become available at a good price then we would be opportunistic and we believe we have the wherewithal to do that in terms of our cash balance, our ability to raise that and of course our public currencies.

So we don't feel that there is any financial constraints on our ability to do acquisitions. The real constraint is in the supply. So, we are fortunate that we have -- we think a very strong competitive position, but the flipside of that is it doesn't mean that there is a lot of TechTarget lookalikes that would be easy to consolidate.

But we definitely keep our eyes open, for things that makes sense. It's just by the time you know things are good properties after you look at the due diligence, if they are good, and a lot of these good properties don't come for sale because these tuck in opportunities tend to be very nice lifestyle businesses.

And then when they do come for sale a lot of times it's hard to get a meeting of the minds on valuation, but when all of those planets align, as you know in the past we have been very opportunistic..

Okay, and then on the traffic, terrific again, the unpaid traffic 96% of overall traffic that's something I have seen companies done the other side of that and you never want to take that for granted.

But given the amount of new traffic I mean you are again at [technical difficulty] being up 16%, does that say anything about the appetite for overall just this disconnect between the business people are doing and the traffic searching or is that really more about just the continued raising of the editorial content, the quality of the [technical difficulty]..

Well, I think it's a few things. I think we continue to invest aggressively in content, we definitely see some of our competitors pull back in their investment as this prolonged downturn has really hurt their business.

But I think it speaks to that there is a lot of activity on the IT side and there is a lot of catalyst in place for IT spending growth. Yes the migration, the Cloud which is very good for us, you have all these companies trying to figure out big data, you have security issues, you have people trying to get their data on to mobile devices.

So, on the IT side there is a lot of catalyst, there is lot of activity and that's one of the reasons why the traffic is growing nicely, in addition to that we are doing a good job with it and we are seeing a pull back.

The missing piece which I think is pretty clear when you look at the economic data that's been reported is you know companies just are not in reinvestment mode.

So for IT spending you need two things, you need the catalyst which I think we have in space but then you also need companies to be you know to have the confidence and optimism to be investing in themselves and that is not what's happening right now..

Okay. Thanks for taking my questions..

And this concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..