Charles Rennick - VP, General Counsel and Corporate Secretary Gregory Strakosch - Co-Founder and Executive Chairman Michael Cotoia - CEO and Director.

Jinjin Qian - Needham & Company John DiFucci - Jefferies LLC Eric Martinuzzi - Lake Street Capital Markets Michael Malouf - Craig-Hallum Capital Group Allen Klee - Sidoti & Company.

Good day, welcome to the TechTarget Quarter for 2017 Earnings Release and Full Year Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Charles Rennick, General Counsel. Please go ahead, sir..

Thank you, Rachel. 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. Also joining us on this call today is Dan Noreck, our CFO.

Following Greg and Mike's remarks, the management team will be available to answer your questions. 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 TechTarget 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. We finished 2017 on a strong note, which sets us up very well for 2018, 2019 and beyond. Online revenues were up 18% in Q4 2017. Core North American revenues were up for the first time since 2015. IT Deal Alert Q4 2017 revenues were $14.1 million, up 58% versus Q4 2016 and $49.5 million for 2017, also up 58% versus 2016.

Revenues from Priority Engine and Deal Data more than doubled in Q4 2017 versus Q4 2016. The number of IT Deal Alert customers in Q4 2017 was over 600, which is up from over 400 a year ago. We had over 40 new Priority Engine and Deal Data customers in Q4. 24% of the revenue in Q4 2017 was derived from longer-term contracts.

Adjusted EBITDA was $8.1 million, which is an adjusted EBITDA margin of 27%, and our adjusted EBITDA was up 73% versus Q4 2016. I will now open up the call to questions..

[Operator Instructions]. The first question comes from Jinjin Qian with Needham..

I have two questions. First, obviously, we've seen nice uptick from the Core North America revenue. Just wondering if you can give us more color. Is it due to the recovery of the 4 largest customers? Or are we seeing any year-end budget flow? Or is it overall IT spend acceleration? So any color on the drivers for the Core North America.

And second question is on IT Deal Alert. We see customer counts flat Q-over-Q. Although you noted 40 new adds on the peak prior to Engine and Deal Alert. Just trying to get a sense of kind of some of the trends you're seeing on the IT Deal Alert..

Great. Hi, Jinjin, this is Mike. To answer your first question regarding the Core Online business and the uptick in North America, we've seen some positive trends over the last four quarters when the decline in our Core has continuously diminished. And we're optimistic. I would say we're cautiously optimistic as it relates to the Core.

And I don't think that the Core will turn and accelerate at the flip of a switch, but I expect us to see continuous improvements. As it relates to those four of the largest accounts, I think that does play a role into it.

As you recall, there were three major, I would say, headwinds that we were being faced with as it relates to those four largest accounts. And a lot of those headwinds are now in our rearview mirror. The number one was the major transactions that happened, whether they were acquisitions or divestitures.

Over the last two or three years, we've been dealing with 4 major accounts, as you noted, and those are starting to become in our rearview mirror. Number two, some of the earnings we're starting to see -- some improvement on our earnings calls, not across the board, but we're seeing some positive signs on that side.

And number three, with the weakening dollar, hypothetically, this should help us out and improve our Core business when it comes to the international side. I would also like to add on to that, that even though we're seeing our Core improve, the transition for TechTarget is here. We are a data company.

And in 2018, we expect that our data revenue will surpass our Core revenue. So our playbook for the year, as it's been throughout 2017, will be to lead with our data products, primarily Priority Engine and some of our other data solutions.

And then as our customers get very entrenched in how to leverage our data products through our longer-term contracts, as Greg mentioned the 24% of our revenue in Q4 was attributed to long-term contracts, that will help us support some of that Core growth.

And on the IT Deal Alert question that you had, we were very happy to see 40 new customers that signed up in Q4. I will tell you that during Q4, we announced the price increase that was effective January of 2018.

And our sales teams did an excellent job of really focus on renewing existing clients and upselling those clients into longer-term contracts, whether it's an additional segment as well as an additional region. So we look at that IT Deal Alert business.

And there's really three ways to continued growth, there's the price increase, which we've initiated; there's adding net new customers, which as you saw we added over 40 customers in Q4; and it's also renewing and upselling, whether it's by additional segments or additional regions to our existing customers.

And our sales force has a strong focus on that, our product innovation team has a strong focus on that and we're very pleased with the progress across all 3 of those areas..

The next question comes from Brian Fitzgerald with Jefferies..

This is John on for Brian. In your letter, you noted a little bit about the changes in tax laws and oversea cash repatriation. Just curious if you could expound on the environment that you've seen so far to start the year.

Is that really going to start to be an inflection for the business maybe in the second half? And then the second question, just around the upcoming GDPR regulation in the EU.

How do you see that impacting your business, be it from OpEx, in order to stay in compliance with it? And then also anything to highlight on the top line that might be at risk from the international revenues..

Great. John, this is Mike again. In terms of your first question regarding the tax laws, obviously, those are newly adopted and I don't think you'll see again things accelerate at the flip of a switch. However, as companies start taking advantage of lower corporate tax rates, repatriating some of the money back into the U.S.

as well as getting their -- as well as having IT equipment expense in year 1, we believe that this will be a tailwind for the business because I think it will help out our customers who are -- especially our global customers, who have a lot of operations based overseas that are looking to repatriate some of the money.

They're looking to make sure that their clients can expense capital IT in year 1. And so I think -- then with the lower tax rates, it will help their bottom line. So we haven't seen an impact today. We expect that if these things take into -- go into full motion, it should be a positive impact for the business..

And in terms of the guidance that we gave today, we're assuming -- that assumes that IT spending in 2018 is roughly the same as 2017. If IT spending does improve, as many people think it will, that would be upside to our model. So that's not -- we haven't incorporated anticipated improvement in the environment into the guidance.

So it's upside for the model..

And then on your second question, John, regarding GDPR, the data regulation compliance will take effect on May 25 this year. And I think right now, a lot of our clients are really trying to figure out how and if this will really impact them with being enterprise B2B technology marketing organizations.

So I think in the short term, there'll be some questions and some concerns as it relates to our customers trying to figure out how and if this really impacts them or applies to them. For us, from day 1, all of our registered users provide clear permissible consent. So we've really been having these regulations in place for a long time.

And I think as it all settles out, this would actually be again another tailwind for our company based on how we've built the organization and making sure that our active users provide permissible consent when they're receiving our offers as well as our partners' offers..

The next question comes from Eric Martinuzzi with Lake Street..

Yes, just to layer deeper on the growth forecast for 2018, obviously, ITDA kind of regrowing here.

Do you expect Core to grow on a full year basis?.

So our overall numbers, based on the current environment, we have Core projected to be down single digits throughout the year. But Eric, as you've seen, we've seen some positive trends over the last four quarters. If you look back to Q1, our Core business was down in the mid-20%. When we finished the year, it was down single digits.

Again, we're cautiously optimistic on this. I think the large global accounts that went through major transactions and having that in their rearview mirror should help subside some of the choppiness.

But again, I think as a company, we are going to focus on leading with our data products, primarily Priority Engine, and as we get our data into our customers' workflow, their sales and marketing workflow, we'll be able to show them right in the platform not only the most active accounts and not only the most active prospects that are engaged and which regions they're looking at and which vendors they are being influenced by, but we'll also be able to show them who they are and who they are not influencing.

So having that information right in front of our customers should help. It has continued to help with us so far support the Core. But that's how we forecast the business going into 2018..

And the core business is very sensitive to IT spending. So if there's improvement IT spending, I think we'll see improvement in the Core. That's certainly the patterns that we've seen in past recoveries..

I noticed in your Shareholder Letter, you talked about the percent of revenue under long-term contracts, 24% for 2017, and you're expecting that to be 30% by the end of 2018 and higher than that in 2019 and beyond.

What -- is there a long-term model that we should be thinking about that, in your own mind, over the long term that this is part of a normal marketing spend for any enterprise IT budget, and that ripples across to TechTarget as x percent of contracts would be long term?.

So I think one thing on that, Eric, is that our customers are still in the very early stages of transforming their marketing and sales organizations to become data driven. And the number one piece of data that they are really craving for is purchase intent data.

And the way that we've set up our business in terms of investing in content to attract a very engaged and active user by technology segment and region is critical for these folks. So we look out the next 2 to 3 years. We feel that we can have close to 40% of our revenue being recognized, associated and derived from long-term contracts..

Understand.

With the price increase, was there an incentive for them to go long term on a renewal, say, in Q4? Or was this -- they were -- it's just they're getting comfortable and it's part of their normal workflows so they decided to go long term?.

Well, the incentive was that they could -- first of all, it only was tied to longer-term contracts. So yes, it's a good point.

Number two, was an incentive for our customers to, again, whether they were a first renew or a second renew to lock in to 2017 pricing as well as to expand their investment in Priority Engine by adding an additional segment or the same segment in an additional region.

So those incentives we there, we saw some good success on that and I think our sales force executed that very well..

The next question comes from Mike Malouf with Craig-Hallum Capital Group..

If we look at the historical sort of Core online revenue, and you obviously have some of these large issues behind you, you have the currency go in your direction again, and as you sort of pointed out, the tax reform, and certainly, expectations are good.

Is the environment -- is the market size big enough to sort of go back to those 2014, '15 numbers in the $75 million to $80 million mark? Or is it systemically lower now?.

Mike, this is Mike. I think there's absolutely an opportunity to get back to those levels. Again, I don't think we're going to jump there immediately.

But you mentioned, we have a lot of those headwinds that are behind us also including the strong dollar, those acquisitions, but it's really important to understand that when we lead with our IT Deal Alert suite of products, again, primarily for Priority Engine, where we are allowing our customers to have access to the intent data at the account level, which we can prioritize every week, at the prospect level, which are the active buyers on our sites, and we can show them which is real critical, when their competitors are influencing those buying teams and those accounts by region and when they are not our customers, when they are not influencing them or when they are influencing them, they need to message, engage, influence and drive their awareness within those accounts.

So that really does help take data to tell the story about why you need to influence and engage through content marketing, which would be custom content white papers, lead generation, contextually aligned branding, custom micro sites.

And that is an absolute necessity because we can provide all the purchase intent data in the world, our customers are seeing success on it, you're seeing success through better marketing conversion rates as well as better sales pipeline, but the story really makes sense to influence these buyers while they're early in the decision purchase cycle.

We've proven it out on the data side. So yes, we think that if this continues to move this way and we have these headwinds behind us, we have an opportunity to bring it back to '14, '15 levels..

Great.

And then with regards to IT Deal Alert, as I look into just the March quarter, was there any pull-forward in the December quarter revenues, especially with this price increase coming? Or should we see sort of sequentially up numbers like we have in '15 and '16 from the December quarter to the March quarter?.

So we didn't -- it's really challenging to try to pull in revenue because you have the long-term terms subscriptions. Typically, Q1, the one thing I'd say is customers are trying to finalize their budgets and get things done. Sometimes that can be the middle of February. Sometimes it gets to the middle of March.

So when we sell our long-term subscriptions, our longer-term contracts, really difficult to pull it up. But our focus is on that, so we make sure we capture the full amount of that revenue in Q2, Q3 and Q4. But there really is no pull up -- pull in into Q4..

The next question comes from Allen Klee with Sidoti..

My apologies, I missed the first part of the call, if somebody asked this.

But could you comment on kind of just the tone with your largest customers and your smallest ones? And if internationally, with the weak dollar, if you're seeing any benefit from that?.

Great. This is Mike. In terms of our largest customers, which we breakout by customer segment, we saw on our 10 global accounts an increase in revenue year-over-year. I'd say, we're cautiously optimistic that we should still see some positive trends.

I mean, along the headwinds that we faced over the last 2 or 3 years such as the major acquisitions or divestitures, the strong dollar and the weak earnings are starting to subside. We're seeing that more and more in our rearview mirror. So again, that always impacts our business.

That impacts some of our international business because a greater percentage of our international business was driven by those larger accounts, those global accounts. So I'd say, we're going to stay cautiously optimistic.

And we're going to continue to lead with our data solutions because that really does help us support the core investments that our clients are making. In terms of the smallest accounts, we have products now that we can actually introduce to some of our smaller accounts that we might not have been able to do a year or 2 ago.

Again, with Priority Engine and some of our entry-level packages, we're starting to see some success on that. I think you noticed on the customer segment breakout that, that was our largest increase in terms of year-over-year growth, the 35%.

So we're seeing success on that, but again, everything that we do, our playbook for 2018 is 100% becoming that data organization, which we are, and leading with our IT Deal Alert suite of products and solution sets, primarily our Priority Engine platform..

With no further questions, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect..