Greg Strakosch - Chairman Mike Cotoia - CEO Daniel Noreck - CFO and Treasurer.

Tim O'Shea - Jefferies Kerry Rice - Needham & Company Eric Martinuzzi - Lake Street Capital Markets Mike Malouf - Craig Hallum Capital Group Alan Klee - Sidoti.

Good afternoon, and welcome to the TechTarget Q4 2016 Earnings Release and Full Year Financial Results 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 Charles Rennick [ph], General Counsel. Please go ahead..

Thank you. Before turning the call over to Greg Strakosch, our Executive Chairman; and Mike Cotoia, our CEO, I want 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 have posted our Shareholder Letter on the Investor Relations section of our website and furnished it on an 8-K. Following Greg and Mike’s remarks, the management team will be available to answer your questions.

On the call, in addition to Greg and Mike, we have Dan Noreck, our Chief Financial Officer. 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. Please refer to our risk factors in our annual and quarterly reports filed with the SEC. These statements speak only as of the date of this call, and Tech Target undertakes no obligation to update them. 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 accompanies our Shareholder Letter. With that, I'll turn the call over to Greg and Mike..

Great, thank you. IT Deal Alert revenues were up 52% in Q4 and up 36% in 2016, despite a very weak IT spending environment. We expect IT Deal Alert revenues to be up at least 40% in 2017. Revenue from long-term contracts was 15% in the fourth quarter, we expect revenue from long-term contracts to be at least 20% in 2017 and at least 25% in 2018.

In 2016, face-to-face events represented less than 5% of our revenue. We have made the decision to phase out this product line, because event marketing budgets have been shrinking and has become more difficult to recruit attendees. And it takes an enormous amount of resources to produce successful events.

This will allow us to have more focus on our main goals to becoming a data business, integrating our core products with our data offerings and selling our services on an annual basis. 2016 was our 13th consecutive year of being cash flow positive.

We plan to continue our strategy of using excess cash flow to repurchase our shares and reduce our share count. In regards to looking forward to 2017 we expect online revenue to grow double-digits and adjusted EBITDA to grow at least 20%.

Our expectation is that we will continue to see challenges in the aggregate in the first half of 2017 from our four largest customers who are in the middle of corporate transactions. We expect to see improvement from these four customers in the aggregate in the second half of 2017.

We remain extremely bullish on our prospect as our customers commitment to becoming data driven sales and marketing organizations continues to grow and they continue to rely on our data to make this transformation. This is an enormous opportunity where we have a leadership position, a very differentiated offering with significant barriers to entry.

I will now open the call to questions..

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Tim O'Shea with Jefferies. Please go ahead. .

Yes good afternoon and thank you for taking my questions. So just on the international rollout of priority engine, I think you said in the past that new clients typically take around 90 days of sort of testing the product before moving onto annual contract.

So I'm just curious if you could talk about the success that you’ve had transitioning your international clients to annual deals? And then overall would you say that the international rollout is occurring at the tempo you expected. And maybe if you could provide an update around the Asia launch how is that going. And then I have a follow-up. Thanks..

Tim, this is Mike. In terms of the international rollout, as you know we launched in EMEA region early in 2016 and we’ve seen very similar experience that we’ve see in the United States in terms starting with the 90 days and then transitioning to annual contracts. So we're seeing that very consistent with what we saw in the United States.

In terms of the APAC regions, we fully launched those at the end of Q4. So those are early stages of the rollout, but what we are seeing as a pattern that again they will test with the 90 days and then eventually get into the annual subscriptions. And what we see early testing and early results we feel that those patterns will be similar to the U.S.

And in terms with the tempo, we've been very aggressive in terms of getting the IT deal alert offering available in the APAC regions. And we break it down into some of the ANZ and India and ASEAN markets. It has been a product that our customers have been asking for. Because we've been showing them the data in terms of the tempo and the rollout.

I think we're right on target in terms of that I'm excited about the tempo. And we believe we're going to see continued success in those regions..

Yes, great thanks Mike. And then just quick follow-up. Just looking at the guidance $22.5 million to $23.5 million of revenue for Q1, is there any events revenue in there or is that all online? Thanks..

There is just a small little stub of that that we had announced at the end of last year. It’s just a couple of hundred thousand dollars, and then we don't expect to see more event revenue in Q2 or beyond..

Okay, great. Thanks, Greg. .

Our next question comes from Kerry Rice with Needham. Please go ahead..

Thanks maybe a couple just questions about next year and then maybe a higher level one.

You mentioned that second half should be stronger than first half, is that primarily due to these four large accounts coming back or is there anything else that you are including and why that strength will kind of pickup in the second half? The second question is you mention with Priority Engine we know you integrate Salesforce you mentioned Mercado [ph] any other names marketing automation solutions that maybe are key partners that we should look for as milestone? And then the third question just on a high level, there has been a lot of discussion on potential tax reform with the new administration, how -- if that comes to bear is that beneficial if at all to TechTarget? Thanks..

Great, Kerry this is Mike. I am going to take these one at a time. In terms of the first point regarding the four accounts, picking up those are the accounts that we’re going to do -- are in the middle of pretty substantial transactions and that is absolutely a piece of the pickup in the second half of the year.

You know the accounts, you know the dollar amount in terms of the transaction size and the deal sizes and as we mentioned in the last back in our November earnings call, these typically take 12 months to cycle out and make sure that we get back to speed.

What I tell you when those accounts come back and reenter the market in terms they have a pretty clear vision of their product strategy via map, they will all become very data driven marketing and sales organizations and they really will leverage the intent data that TechTarget has to offer.

Also just to give you a little bit of back -- a little color, on the core side, the market -- the IT market is still externally weak and we saw that especially in Q4 in some of these pockets that you’ve seen some of the larger enterprise traditional hardware server and storage companies with their earnings, we had a crazy election things were really put on pause.

In terms -- we will see that come back and also we will focus on is the part of our long-term strategy, short and long-term is really the data business and making sure that we transaction that into longer term data subscriptions where we see a little bit more stickiness in that and that we’ll see a bigger pick up in the second half as well.

On your second comment, I hope that answers on the Priority Engine, yes we announced we integrated to Salesforce and we are now integrated into Mercado.

There will be other marketing automation companies that are on the radar that you’ll see we’ll announce in the next quarter or so that you’ll see and their names venders out there so you will see that.

And then on third piece on the tax reform, everything that we are seeing with the new administration, points us to lower tax rates, repatriation of companies and companies money. However, what we are also reading on is it’s really not going to be until the later part of the second half of the year.

So, you may not see the direct benefit of the new tax reform until very late ‘17 but more likely in 2018 and Greg I’ll let you comment on that..

Yes, I think on the tax reform, I think the proposal that we are most excited about as it goes through is the ability to expense capital investments in the first year instead of expensing them over a longer period of time. In the past that has been a catalyst for IT spending. As you know, when IT spending goes up, marketing budget will go up.

So, for us that would be a very good thing. The second, there were polls online repatriation of cash held overseas we also think would be positive for us because if you look at our largest customers, our largest customers have tens of billions of dollars trapped overseas. So I think it would be good for us if that money came back to U.S.

And then I think the overall idea behind lowering the corporate tax rate is to spur reinvestment, because if you look at the IT spending over the past 10 years we haven’t -- the economy has not been in reinvestment mode. Companies have had lots of cash but the strategy has been hold cash, dividends, buyback, M&A not reinvestment.

So anything that would spur reinvestments what’s obviously that helps IT spending that is one of the key places where companies reinvest. And as we’ve said in the past, if IT spending stays the way it is roughly flat, we believe we can grow revenues double-digits per year basically by gaining share.

But if IT spending increase 3% or 4%, which is certainly within the historical norms nothing out of the ordinary, we believe that marketing budgets would increase. And then instead of us what we are doing today, fighting for legacy dollars to gain share, we kind of be a jump all on new marketing budgets.

We think with our competitive position and how that’s strengthened, we think that we could become a 20% revenue grower very rapidly..

Thank you. .

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

In 2015, I think your top 12 accounts for about 40% of revenue, do you have a similar metric for 2017?.

Yes on the top 12, they would estimate around 35% and the growth is….

I was just going to say that that’s shrunk to 35% and then the mid-size accounts would have grown..

Okay. I was just wondering was there movement amongst those top 12 or are you just saying, hey, we grab the same 12 names from 2015, as with those same 12 names equal now..

Yes, I mean we look at our business in a couple of different ways. We’ll look at that same cohort of the largest global companies that are billions in revenue and we look at that and that has shrunk from 40%, 35% while the next 100 customers has increased.

We also look at our top 10 customers, the top 25 customers, and those tend to be a lot of overlap between those, but when we are talking about those global ones it’s the same like accounts..

Okay, that’s helpful. And then you talk about the big four that were patiently waiting for to come back.

When you say you expect improvement in that back half of 2017, does improvement equate to growth or is that just an attenuation in the rate of decline?.

I think first the first step -- Eric this is Mike. The first step is all of these companies have to lay out their products strategy, their road map strategy and come together with their marketing plans. And they all pull back during these major transactions and they all watch every nickel that they are spending now until they have a clear path.

What we would have seen in the past and for example there was a fifth company that I will say anniversaried out and we saw that not only stabilize, but actually had some growth year-over-year by look at it.

So, we expect these to stable, stabilize, come with a plan on their marketing strategy, leverage intent data that TechTarget has to offer and grow their business with us from these low. So yes we expect these guys not only to stabilize and come back and grow. .

Okay.

And then the exiting of the events business, are there any one-time issues that will impact profitability and how will those be treated? Will they be kind of digested as taken or are these going to be treated as like a restructuring and EBITDA add-back?.

Yes, so it is -- there will be some cost taken this quarter against that, they are not large enough to warrant a one-time restructuring charge so they will just be -- they are just integrated into the Q1 EBITDA guidance..

Okay, thanks for taking my questions..

You’re welcome. .

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

Great, thanks guys for taking my questions. When you take a look at 2013, 2014, and 2015 in the North America core online business, you average around $52 million a year and then obviously 2016 happen with all of the restructurings.

When these four bounce back as you sort of expecting in the back of this year, do you expect to get back to that sort of 52, at least the $52 million run rate in the North American on an annual basis?.

Hey Mike, it's Mike Cotoia. If you take a look at the four accounts that we are talking about right here, we feel that these guys will come back and they will be building their business on our data business and also bring back their core online spend.

But there is an interesting analysis that we looked at, so we looked at all the core spenders in IT Deal Alert spenders. And even outside of that we'll call those global accounts, what we noticed on that was anybody that spent in IT Deal Alert, if you looked at as a whole that were outside the global those global accounts that we talk about.

They spent in IT Deal Alert their core spend was up roughly 10%. And if there were IT Deal Alert spenders in 2016, their core declined by double-digits.

So really the strategy and the sales execution that we're dealing is making sure that we lead with our data products for the global and the top four all the way to the non-global accounts, because when we get those vendors to invest in IT Deal Alert they have a high potential to buy on the core on that. So that has to work through across the gamut.

So yes I think those four will come back and they will comeback in the data side as well as the core come along with it. But it's also those non-global accounts that when you get them into an annual longer term data subscription being able to tie them into the core our trends itself if that works very well and that's big part of our playbook..

And to answer the question specifically, yes we think we can get back to that $50 million plus. And we think that we can grow it from there when IT spending recovers..

Great. And then just that fifth customer that has now lapped comes back.

How has their spending has it shifted more towards the data side on the IT Deal Alert side than you would have expected, or are they still really supporting the core online as well?.

They were strong IT Deal Alert customer and they still spend in the core yes..

Okay. And then one quick question on the Deal Data side I know that you were trying to get into the investment management business with the product.

Can you give us an update on how that's going or do we still need to couple more quarters’ data before it starts to sell?.

I think we're probably looking at a couple of quarters on that we still have a lot of in-roads we're making on the vendor side and selling some of the syndicated type of data, but also evolving this into some custom data that our vendors have requested.

So it plus on the investment banking side, time certainly is very important in annual year-over-year type of metrics is key for these folks, I would say that's going to be second half of the year..

Okay, great. Thanks for the help. .

Thanks, Mike. .

Our next question comes from Alan Klee with Sidoti. Please go ahead. .

Good afternoon.

Can you give us a sense of the level of your sales force and any plans of changing that in 2017?.

I think the sales force is fairly consistent with '16 in terms of how we are structured. We have our global account reps that cover those large I think almost global billion dollar accounts.

And then we break our sales force into what we call media group reps and sales directors and managers that really align with the specific technology in the market i.e. storage, datacenter, hyper conversions, business intelligence.

And we also break that down into by region where we have a direct sales force in London, France, Germany and throughout APJ, what we've done over the last six months as we've put some more sales support services on our priority engine product for on-boarding and renewals to help and assist the sales force on that.

Because it's important when we sell Priority Engine that our customers that buy that and again these are typically longer term contracts. We want them to engaging the data immediately and effectively and use the data the right way. So on the sale support side we've restructured a little bit of that to help with that, we've seen good success on that.

And we have some specialist that will help us sell the data products and help support the media group or global account reps in North America as well as throughout the world..

Okay, great.

And for your core online product, do you have any major changes for 2017?.

I think in terms of -- on the core what’s really sticking out to us is when we sell IT Deal Alert subscription revenue, we have a greater propensity for our customers to buy the core.

And to dive into that a little bit, what our Priority Engine tool, our portal allows our customers to do which they could not really do before is to see how their content marketing in their core we’ll call core lead gen and brand are effect these account in these contexts.

So we will show right in the system this account is ranked number one this week on Business Intelligence software and there were 25 people who are actively prospecting within the account and when I say actively prospecting, they are engaged in content on our sites on this topic within the last 90 days.

Now when they lay the core on that where they put their white papers or their other content assets on and they brand in those buyers within the account engage with their content, which we’ll call the core, we will show right into the Priority Engine portal, this just move from an active prospect that engagement TechTarget content to a lead that has now dropped and engaged with your content, so they actually can see it in one place.

And before it was very difficult for our vendors to do core, put it into the nurture system, try to nurture it, it almost going on a black hole sometimes.

Now when we show it right in front of them in one tool that surrounds the account, the buying team and the individual the plan is to make sure that we lead with the data and then double back and sell the core and like I said with those accounts that are outside of the global, those folks that were spending in IT Deal Alert their core marketing was up double-digits 10%.

.

And also like integrating the core with the data offerings, which we are selling more on an annual basis, it allows to sell some of the core on an annual basis as well. So integrating those two is a key part of the strategy and it’s also the way for our customers to get the best ROI by using both offerings together..

That’s great, that’s powerful. Thank you.

Than just some questions on guidance, do you -- I notice the tax rate in the quarter was a little high, could you comment on that? And then just any thoughts, if there is any reason the tax rate should be different going forward and also your interest in other expense line jumped up for this quarter and is that just kind of a one-off thing or is there any other reason that I should know?.

So the tax rate in the quarters specifically was related to some options, right. So non-deductibility of options. So that was specific, so for on the annual basis you could expect the same and then on the interest question I mean I’ll let Dan answer that..

So the interest was in relation to the $50 million term loan that we took out from the bank to fund the tender offer in our share repurchase program. .

Right, okay. And then just what’s behind -- when you give your guidance for first quarter of ‘17, you’re guiding to revenue of -- at the midpoint around $23 million, which if you just compare that to the online revenue in the quarter you just did it’s around $25.6 million.

So is this -- what’s the reasoning for the down sequential revenue, is there a seasonality thing with fourth quarter or is something else?.

Yes, it’s 100% seasonality, budgets get finalized in Q1, they get out, this has been since the inception of TechTarget and the IT market works that way, the biggest quarters typically Q4 end of the year budget, thing are getting done, Q1 they try to finalize budget for the year, things don’t get finalized until the middle of February, March sometimes they’re even delayed further than that, but that’s it is seasonality..

Yes, so historically if you look at our revenue, first quarter is typically 20% of revenue of the year; second quarter is 25%, 26%; third quarter is 25%, 24%; and fourth quarter is 29%, 30%.

So that’s kind of the -- at some year it’s a little bit different than that based on just the revenue of the year, but if you look over a long period of time that’s the normal break out of revenues based on seasonality.

And it’s that’s what Mike said, if you take the end of the year push first quarter companies are figuring out their budgets or strategies and also keep in mind a lot of the marketing spend is tied around new product launches, which tend to be in the spring and the fall so that relates to again to strength in Q2, September through the end of the year..

Okay, thanks.

And my last question I am not sure if missed it in the press release, but do you have any comments on how your small customers performed?.

Those customers were down a little bit..

Okay, thank you very much..

Okay, thanks Alan..

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