Good afternoon. And welcome to the TechTarget Q1 2019 Earnings Release Conference Call. All participants will be in a 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, General Counsel. Please go ahead..

Thank you, Chad, and good afternoon. Joining me here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our Chief Executive Officer; and Dan Noreck, our CFO. Before turning the call over to Greg, 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’s introductory 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 periodic 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 will turn the call over to Greg..

Great. Thank you, Charles.

2019 is off to a very good start, Q1 2019 revenue grew 10% versus last year, Q1 2019 adjusted EBITDA grew 53% versus last year, gross margin was 77% in Q1 versus 75% last year, adjusted EBITDA margin was 27% in Q1 versus 19% last year, adjusted cash flow was $7.1 million, which is 89% of adjusted EBITDA and up 492% versus last year, long-term contracts represented 33% of revenue in the quarter and today we announced that we are raising our annual adjusted EBITDA guidance from a previous range of $36 million to $37 million to a new range between $37 million and $39 million.

I will now open the call to questions..

Thank you. [Operator Instructions] The first question will come from Mike Malouf with Craig-Hallum. Please go ahead. Mr. Malouf, your line is open, perhaps, your line is muted on your end..

All right. Sorry. Thanks, guys. Thanks for taking my question.

Can you hear me?.

Yes..

Great. This is the first quarter that you didn’t breakout IT Deal Alert and I am just wondering as you go through this, are you giving any kind of commentary on how IT Deal Alert is doing relative to maybe the traditional online business and if not then I have a follow-up..

Great. Hey, Mike. It’s Mike Cotoia. First of all, yeah, as we mentioned last year, as well as the quarters, we were going to combine the numbers for the first time coming into 2019 and we have continued to do -- and we have done that and executed on that.

With that being said, all of our business is really being generated and the catalyst is our purchase intent data solutions and if you really peeled it back and looked at Priority Engine, which I think is the one product you are probably trying to evaluate, we do breakout in the shareholder letter that, that grew 37%, but again we will continue to report on one number.

And again, to reiterate, the reason why we do that is the data tells us -- tells our customers, who’s in market today, the content marketing, whether it’s content syndication or branding, helps our clients influence and engage with those folks and they work very well hand in hand and we see that each is a catalyst for each of the products.

So just to give you a little bit of color on that, the Priority Engine number grew 37% and the overall number grew 10%..

Okay. Great. And then, you mentioned in the letter that you are going to ramp-up spending in investments a little bit starting -- actually, I think, you already started it. Can you talk a little bit about what those investments are focusing on particularly as they need sort of new products or any specific offshoots of IT Deal Alert? Thanks..

Sure. As you saw that we had a really strong gross margins and incremental EBITDA margins and EBITDA margins. And when we came out of Q4, we all recall that December was probably the worst stock market in 80 plus years being reported.

So we take a look and we do a good job of managing our expenses as we head into the year and a lot of those expenses are head count, backfill of head count. We want to have a strong focus around some key areas. One, product development and enhancements.

So as you have seen in the past, we came out with some new enhancements to Priority Engine, such as our Inbound Converter and our ROI Dashboard. Two, we are making some investments around our sales enablement team so we can better align our own inside sales reps and outside sales reps, better technologies to go after net new prospects.

And number three, we are very focused and heavily invested in our customer success team.

As you remember, we launched our customer success team in the middle of Q4, it was our first full quarter of having our customer success team put together, which is comprised of senior sales leadership, senior client consulting managers and our operations team coming together under one umbrella to make sure that when we sell a long-term subscription to Priority Engine to our growth accounts that we can then transfer to our customer success team who can better onboard our clients, they can better provide use cases and help them measure the success between the data and the core elements that they are investing in..

Got it. Thanks a lot for the help..

You bet..

[Operator Instructions] The next question comes from Marco Rodriguez with Stonegate Capital. Please go ahead..

Good afternoon, guys. Thank you for taking my questions. Wondering….

Good afternoon..

Hey. I was wondering if you could go into a little bit more detail just kind of on the regions, obviously, international saw some pretty strong growth 15% year-over-year. I understand the Priority Engine in the quarter, in general, as an aggregate, was up 37% year-over-year.

Just trying to better understand from the segment’s perspective, what’s driving kind of the different growth rates there?.

Right. Yeah. We saw good growth in our international regions and we break those down into EMEA, APJ and Latin America. In EMEA, we saw some really good growth rates in Priority Engine, as well as the core was up in the international business a little bit in EMEA.

If you take a look at our -- and that’s driven by our customers and prospects are, whether they are based in the United States or whether they are based throughout EMEA or the rest of the world, are very focused on getting the most valuable data to help fuel their sales and marketing departments.

The number one 1 piece of intent data that they are looking for is purchase intent data. So I would say that the international regions are, probably, lagging a little bit behind the U.S.

in terms of data adoption and some of these new technologies, but Priority Engine has really been a good catalyst for that growth and we saw that throughout EMEA, as well as APJ. In APJ, we saw again great growth on the -- strong growth greater than the 37% growth in that region for Priority Engine.

We saw some of the core components on that down a little bit, but when you start layering in the intent data offerings on that, where customers can actually see who’s in market, who’s being considered, who bought what, it really does help tie together the core and the data products. Latin America, they are fairly small numbers.

So we saw a lot of growth in Latin America. We just launched Priority Engine last year in Latin America.

So we are very optimistic about the growth in the add-ons that we are seeing with some of our North American programs that want to be added onto Latin America, but those are relatively small, but there was significant growth in terms of percentage..

Got you. And expectations as far as the two different segments, North America and international your expectations as the quarters progress from a….

You know….

… revenue standpoint?.

Yeah. I think, consistently, the international business is about the third of the overall business and we could see that continuing to be relatively the same this year, and we expect the growth pattern to be relatively similar to what we saw in Q1..

Got you. And I apologize if I missed this, I know the prior call -- prior question asked about the investments you are making.

Where are those investments going to be when we look at the operating expense line items, where are we going to see an uptick?.

You will see it in -- we are making our investments in sales and marketing, and product development around, obviously, the new products, enhancements to Priority Engine and around our customer success and sales enablement teams.

And that will be both with some headcount, some technologies that we are launching and rolling out that we recently rolled out and we don’t roll those out till really the end of Q1 heading into Q2..

Okay.

So will the investments that you are making, would those be by and large completed by Q2 or should we see something bleed into Q3, Q4?.

I think some of these investments when it turns to headcount, they will be on for -- they will be on our books and some of this will be technology, we will have some technology services that we have invested in that will remain with us.

With that being said, we are still reiterating, guide to really strong gross margins between 75% and 80%, incremental EBITDA margins between 50% and 70%, and we are going to continue to do that, while making the right investments in the business that will help us accelerate growth and customer success..

Got you. And the last question here from me, on this Priority Engine Express, this lower cost version here for smaller entities, can you maybe provide a little bit more color there in terms of the differences between pricing and features for the client.

And then also, is there an expectation as far as when that rolls out live for clients and who’s going to be selling that?.

Right. So I would take a look at, so priority, so as you know, Priority Engine is really an enterprise solution that we sell across all of our customer segments, the global, the next 100 and all others.

We have done a soft launch where we have identified several prospects, a group of prospects that we have allocated some selling resources towards to sell this lower end product and these are typically very small company sizes. Imagine employee count of zero to 49, zero to 100 employees.

What we are doing with this is setting up the pricing, getting some understanding, learning from what we -- the back and forth of the client, and what we really do expect to see is that take place in terms of revenue growth and opportunity in 2020. So we are launching it.

It’s -- like I mentioned, it’s a soft sell, it’s focused on a very unique set of accounts. We are getting a lot of learnings from this and we are pretty optimistic that we have a good opportunity ahead..

Got you.

And the ability for this to cannibalize other, I guess, the enterprise version in the lower types of accounts?.

Yeah. Based on all the analysis and the data that we have, and the customer segmentation that we are breaking out, this would be a net new customer segmentation for us that hasn’t really spent in the past..

Got you. Thanks a lot guys. Appreciate it..

You bet..

Ladies and gentlemen, this concludes our question-and-answer session, and thus concludes today’s call. Thank you for attending TechTarget’s Q1 2019 earnings release conference call. You may now disconnect your lines..