Good day, ladies and gentlemen, and welcome to the TechTarget Second Quarter 2012 Conference Call and Webcast. My name is Valerie, and I will be your coordinator for today. [Operator Instructions] Following introductory remarks by Greg Strakosch, TechTarget's CEO, Chairman and Co-Founder, we will be facilitating a question-and-answer session for today's conference call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Rick Olin, Vice President and General Counsel.

Thank you, operator. Before turning the call over to Greg, I want to briefly remind everyone on the call of our earnings release process. As you saw, we issued our press release at 4 p.m. today. And as previously announced, I'm going to provide the usual update on the business ahead of this call, and hopefully, save you all some time and effort. We have posted on the Investor Information section of our website and furnished with our 8-K filing a letter to shareholders from Greg and Janice Kelliher, our CFO. This letter is intended to provide supplemental information about the quarter ended June 30, 2012. On the call today, Greg will provide a brief summary of our financial results for the most recently completed quarter, and certain other corporate matters, and then management will devote the rest of the call to answering your questions. Additionally, I'd like to remind everyone that during the course of this conference call and the Q&A session, TechTarget will make certain statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, particularly, guidance as to future financial results. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These risks include: market acceptance of our products and services; relationships with customers, strategic partners and our employees; difficulties in integrating acquired businesses; and changes in economic or regulatory conditions or other trends affecting the Internet, Internet advertising and information technology industries. For a description of these and other risks, the company encourages you to read the section entitled, Risk Factors, in our annual report filed on Form 10-K, as well as our other filings we have made with the Securities and Exchange Commission. In addition, the forward-looking statements speak only as of the date of this call, and the company undertakes no obligation to update these forward-looking statements. Following Greg's introductory remarks, in addition to Greg, the following members of our management will be available to answer your questions: Mike Cotoia, Chief Operating Officer; and Janice Kelliher, CFO and Treasurer. I'll now turn the call over to Greg.

Thank you, Rick. Although we continue to make good progress with the rollout of both our new product platform, Activity Intelligence, and our direct international strategy, each of which we believe are helping us to win market share, the macroeconomic headwinds in the IT sector continue to be a challenge. In the fields, our advertising customers are telling us that the macro uncertainty is causing their customers to delay IT purchases. And in turn, they are delaying or downsizing their marketing programs. These dynamics are once again evident in the most recently announced quarter of the 6 largest global IT vendors, which their aggregate revenue declined. This weakness in the IT market is adversely affecting our results. Also, as you have seen, we announced a stock repurchase program, under which we may buy up to $20 million of our stock. At current levels, we believe the company's stock is attractively valued, and that the repurchase of the company's shares represents an excellent long-term investment, and that this action demonstrates our commitment to enhancing shareholder value. For Q3 2012, we expect overall revenues to be between $23.9 million and $25.1 million. We expect online revenues to be between $20 million and $21 million. We expect event revenues to be between $3.9 and $4.1 million. And we expect adjusted EBITDA to be between $4.3 and $5 million. I will now open up the call for questions.

[Operator Instructions] The first question comes from Colin Sebastian of Robert W. Baird & Company.

I guess, first off, clearly, you guys are making progress with the international rollout of Activity Intelligence. But looking at the domestic segment, perhaps more specifically, and the clients there on a year-over-year basis, I think, Greg, you said in a letter that you're still gaining market share. So I guess what is your sense for how much the market overall is declining in those category? And then have you also examined, if there's an opportunity, perhaps outside this more challenged part of the tech industry, if you can extend the platform, perhaps beyond the traditional customer base or even beyond the IT vertical where you obviously have very good traction to date?

Yes. Yes, I mean, it's hard to put an exact number on the decline in the U.S. because most of our competitors are private, or the ones that aren't private don't report by segment. And so -- but the online revenue, we've seen this in past downturns, is much more resilient than traditional vehicles. So we know from what we're hearing about our competitors and what our customers are telling us is that, certainly, the traditional vehicles are under much more pressure than the online vehicles. In terms of going outside the IT industry, we're still very bullish on the IT industry. It's an enormous opportunity. It's $1 trillion market. The advertising -- online advertising market is billions of dollars. We have a very strong competitive position. We're the clear leader in that space. We're gone our way internationally to becoming just as dominant as we are in the U.S. on the lead gen side. And with our new product platform, which is -- we believe we're just gaining share in a pretty meaningful way. So we think that we have the opportunity to build a very large business in the IT sector. Now that being said, if a really compelling opportunity came along, we would look at it. But we just feel that long term, the opportunity in the IT sector is very large.

Okay, great. And maybe as a follow-up just looking at the guidance for Q3. There is some implied deleverage there, or maybe it's more seasonality or additional spending. If you could just clarify that. And if revenues continue to decline, how much flexibility do you have in the cost structure to make adjustments?

Yes, I think it's really -- it's deleverage more than increasing costs, right? So most of our costs are related to labor. And then as the revenue goes up and down, you can really figure out where the margin is. So there's definitely -- there's a lot of operating leverage. When revenues increase, it goes the other way; win or lose, are down. The issue with Q3 in terms of revenues, a lot of our revenues are tied to product launches. And seasonally, Q3, there's not many product launches. And Q3 sees -- if you look historically at our revenue patterns, Q3 is always less than Q2. So in terms of discretionary expenses, obviously, we're in a situation where we're being very careful about that. So things like travel entertainment, we look at. As you know, most of our cost is labor. So we have several levers there in terms of how fast we bring on new heads, how fast we replace people that leave, what sort of compensation increases we do. So we have several levers there. I think that if you look through what happened in '09, we have a pretty good track record, as a company, in terms of maintaining very, very healthy margins.

The next question comes from James Dobson of Benchmark.

Greg, can you mention whether or not there were product delays in the second quarter, or was it just less marketing around sort of the existing rollout?

Yes. So product launches are scheduled many quarters, and in some cases, many years out for IT companies. And so they always continue to launch those. I don't think we saw delays in product launches. Those aren't typically economically sensitive. But what companies do, do is they change the amount of marketing that they put behind their new product launches. And that's certainly something that we saw, but I don't think that we've seen any decrease in the level of new product launches by IT vendors.

Okay. And then could you give us the year-over-year growth in international? And also, could you discuss sort of what your strategy is for Europe? I know some of your partnerships there are coming to an end, at least, the contract. And is there any sort of change in opinion on sort of how you view that in light of sort of the macro environment there today?

Yes. So our strategy is we started with a partnership strategy and our strategy is to migrate that to direct operations. And we've been continuing to do that, and we will continue to do that over the coming years. Although the macro is obviously very challenged in Europe, one of the advantages that we have is that the migration from offline to online by European marketers is -- lags behind their North American counterparts. So even though their marketing budgets are not growing, when we go over, when our sales people go into these accounts with very robust, state-of-the-art, very innovative online programs with proven results and good measurement, we've been very successful in very quickly shifting dollars from offline to online. We're also, I see, taking advantage of our relationships with their North American counterparts. As you know, the IT market is very U.S. centric, and so the largest IT vendors in Europe tend to be U.S.-based companies that we've done a lot of business with. So all those things are still going very, very well for us, very healthy growth rates, growing much faster than the market is growing, very significant market, market share gains. And as we said, international revenues represented 20% of overall revenues in the quarter.

Okay, great. And then the last one, can you touch a little bit on sort of traffic levels? Does it continue to increase in the network, and what about sort of registered user growth?

Yes, so both traffic and registered users are continuing to grow very nicely, especially nice bright spot is organic traffic. We continue to grow at double-digit rates, the amount of traffic that we get from organic search. We're continuing to do that with very -- with a marketing spend at less than 1% of revenues. So very strong traffic growth both in terms of unique visitors and in terms of new registered members, while almost all of that is organic. So very good news on that front.

The next question comes from Sameet Sinha of B. Riley.

So in terms of the international market, can you talk about what other geographies that are working? What are your plans in those specific geographies? And any of these new product introductions, are they going in international as well? That's my first question. Secondly, if you can touch on any changes in the competitive environment, maybe this is -- this recession, competitors weakened and you have an opportunity to deploy your cash balance and give market share. That's it, then I'll have a couple of follow-ups.

Yes, so in terms of the geographies, as you know, earlier this year, we launched direct operations in Australia and Singapore. Those are both off to very good starts. We have a fairly sizable office in the U.K. right now, that's where our European headquarters are. And as we've stated, we eventually -- we want to be in each of the major markets. We're also direct in China and in India. So I think over the next few years, you'll see that number of direct operations grow for us. And we are introducing the new products outside the U.S. I mean that's really one of the big advantages that we have, is that we have the same model in the U.S., same model inside in Europe and in Asia, so we can do integrated global programs very efficiently and quickly. So we -- one of the biggest value propositions we have to our customers outside the U.S. is that we can get them to market much faster because to go through to U.S competitors, they typically have to use -- deal with multiple different people in each different market, where we have an integrated global teams. So it's a -- that's a big competitive advantage. In terms of the overall competitive environment, yes, I would -- that's really our strategy, right, is to continue to innovate, invest aggressively. As I said before, the online revenue stream, as you know, we have very healthy margins with very healthy gross margins, which contributes to very nice EBITDA margins and very nice cash flow, which we generated $5.7 million cash in Q2. And we're definitely aggressively investing in things like the Activity Intelligence product platform and our international rollout to gain market share, to take advantage of the downturn, where some of our more traditional competitors are feeling a lot more pressure than we are. So we're -- our strategy is to invest during weak periods, gain market share. And that will pay off very large -- when an upturn comes. And again, back to one of the previous questions, that's why we're so bullish on the IT market because the things that we've been doing over the past 4 or 5 years during pretty challenging times, we think is going to pay off in a very dramatic way for us when the IT market does turn.

So are you implying that maybe there are not enough assets out there that you could acquire, rather invest, within the company?

Yes, I mean, so in terms of -- we have such a strong, competitive position. There's not a lot of other companies like TechTarget. So there's not a number 2 TechTarget, number 3 TechTarget that are great candidates for consolidation. So we'll continue to look at acquisitions. We've done typically 1 to 2 per year, but they tend to be more tuck-ins than transformative, just because of the dominant competitive position that we have. There's not that many candidates of size.

In one of the previous calls, you spoke about branding campaigns and how they are taking all -- they're doing very well. Can you provide us some data around that for this quarter?

Yes, I mean, I'll speak directionally on it. A lot of the -- the branding part is really doing well for us is our specialized engagements units versus just kind of run of site. So we're really focused on the engagement units around very specific content areas. So that part of our business is growing very well. The other thing I'll say is the biggest purchasers of branding tend to be the largest companies. And we're definitely seeing some delays and pullbacks from the largest companies, which -- that affects the branding side. But we're definitely very happy with the traction we're getting with our newer, more engagement units there. And those carry very premium pricing.

My final question. So I can understand your advertisers' pulling back. Are you seeing any pressure in terms of just volumes, or is there some pricing pressure? What sort of elasticity do you have in pricing, if you bring -- I know you are worse bringing down prices, but would that help in sell-through? And on a derivative question is, in such lean times, have you evaluated the use of ad networks to kind of fill up that -- the inventory that's going ways?

Yes. So in our space, which is the business-to-business IT sector, where the people on our websites are researching purchases that costs 6, 7 and 8 figures, there's always limited inventory of how many people are out there searching, researching 7 and 8-figure purchases at one time. And that's one of the reasons that we've always been able to command such premium pricing. And in a downturn, there's even less people out there buying. So it makes the leads that are out there even more valuable. So we definitely have a strategy where we -- we're selling our value proposition and our premium pricing, and we're typically the most expensive media company on the plan. So it's -- competing by prices, it really isn't part of our business model or part of our company DNA.

And the use of ad networks, you would absolutely averse to it?

Yes, our ad networks are -- there's a place for ad networks if customers are looking for lots of quantity cheap, and that network is a good solution. What our value proposition is, is that we have incredibly high quality audience in the more, much more about quality than quantity. And the premium pricing inherently goes with that. So our -- with the amount of investment we make in specialized content, that type of content isn't really lend itself to selling it for the types of prices that people command on ad networks. And as you know, those types of -- that pricing is under tremendous pressure with the people they're selling traffic on a high quantity basis. The reason we've been able to really escape the pricing pressure that a lot of companies have seen in B2C markets, for example, is because of the highly specialized content that we have in the B2B IT space.

Showing no further questions. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.