Good day and welcome to the TechTarget third quarter 2017 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 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 the 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. Greg?

Thank you, Charlie. The investments that we've been making to transition to a provider of purchase intent data are paying off, which makes us very optimistic about the end of this year, 2018 and beyond. Online revenues were up 16% in Q3 2017. IP Deal Alert revenues were up 84% versus Q3 2016 and are up 58% year-to-date versus the first nine months of 2016. Revenues from Priority Engine and Deal Data were up 139% in Q3 2017 versus Q3 2016. The number of IP Deal Alert customers in Q3 2017 was over 600.We had over 60 new Priority Engine and Deal Data customers in Q3 2017. 23% of the revenue in Q3 2017 was derived from longer-term contracts. Adjusted EBITDA was $6.1 million, which is a 22% adjusted EBITDA margin and is up 64% versus Q3 2016. We believe that our customers' transition of becoming data-driven sales and marketing organization presents a very large opportunity and is still in the early innings. Many of the temporary headwinds that we have faced in the past two years are abating. The dollar has weakened and the temporary disruptions to marketing budgets at some of our largest customers caused by significant divestitures or acquisitions will be behind us in 2018. While overall IT spending remains a challenge, we are confident that we will continue to gain market share and grow faster than the overall market with significant upside when IT spending increases. I will now open up the call to questions.

[Operator Instructions]. The first question comes from Brian Fitzgerald with Jefferies. Please go ahead.

Thanks, guys. I wanted to ask a question around international growth and what you're seeing there, how are the trends going, anything in particular with the growth, any dynamic that you're seeing that's driving it internationally? And then, the second question was just around looking at the upcoming GDPR rollout in Europe in 2018. The way we think about it is that in no way – it has to do with kind of consumer opt-in type of data protections. It shouldn't really impact you guys. As a matter of fact, it might even turn into a tailwind for you guys. Any thoughts on the privacy regulations as they roll out?

Hey, Brian. It's Mike Cotoia. In terms of your first question in regards to global trends, we're starting to see – navigate through some of those headwinds that Greg had mentioned, primarily as it relates to those global accounts. And even if you dive further as it relates some of those – those four major accounts that have gone through some pretty significant transactions or acquisitions, we're starting to see that trend alleviate a little bit in terms of our getting back to some normality. So, that absolutely had an impact on our global business. But what's really been driving the global business right now has been the adoption and rollout of IP Deal Alert. As you remember, that's fairly new in the EMEA and APJ markets and we've broken that out. So, we're hitting each specific market. And very similarly to the North America, the vendors that we deal with are craving for purchase intent data, so that they can become better data-driven marketing and sales organizations. And the IP Deal Alert numbers are showing that. In terms of GDPR, I agree with you. I think, first of all, we are fully compliant with that and we – I think, if anything, that could be a competitive advantage to us. We compete with some organizations that are enterprise as well as consumer focused. So, they may have a few more challenges than we have. But we've been very clear in terms GDPR that we are compliant and we look forward to that opportunity because I think it will create some tailwinds for us as well.

Thanks, Mike.

The next question comes from Jinjin Qian with Needham. Please go ahead.

Thanks a lot. Two questions, if I may. First is regarding your new partnership with DiscoverOrg, just trying to get a sense of how that has contributed to the acceleration of customer wins this quarter and, in general, how are you going to leverage their 4,000 customers in terms of go-to-market strategy to kind of further add to your customer base? And shall we expect any additional partnerships with other companies in this space, such as ZoomInfo and Hoover's. Second is in terms of the core revenue. Any trend you see in IT spending, any update on your top customers that you can provide? And how much of your preliminary guidance 25% year-over-year growth for next year depends on the recovery of the core business? Thanks.

Okay. Jinjin, this is Mike. I will start with the first question regarding the DiscoverOrg partnership. That was recently inked only couple of months ago. And really, what we want to make sure we're doing is is getting this in front of our customers. So, we will see some benefit in 2017. But the primary benefit will be in 2018 and beyond. So, if you recall Priority Engine is the platform that we offer to our customers that allows them to rank and prioritize accounts as well as active prospects. Find team members within those accounts based on their intent and their behavior on our sites. We are – do that by technology segment and we do it by geo. The reason what was attractive with the DiscoverOrg partnership was they have the most enhanced and accurate contact database that will allow us to expand – really will allow our customers to expand their reach in order to reach the entire buying team within technology – with inside of their accounts and prospects. So, we think there are a lot of good synergies there. They focus primarily on the sales organizations. We focus very heavily on the marketing organizations. So, together, being able to go back to our customers and allow both sales and marketing to reach the entire buying team as well as our marketing customers to expand some of their key marketing strategies, such as an ABM, account-based marketing, strategy as they head into 2018 is going to very advantageous for us. In terms of additional data partnerships, we are always looking and we will explore additional partnerships based on the feedback that our customers give us. So, as you remember, we announced the HG Data partnership back in June. And that was around install base technology to…

This is Greg. To the point, if IT spending increases, we would expect to be a significant beneficiary of that. So, a lot of people believe that if tax reform goes through, that will help IT spending because of the expensing of capital improvements in the first year, the repatriation of cash and just a lower corporate tax rate will spur reinvestment. And then, just one additional point I'll make might cover it well. But on the additional partnerships with Priority Engine, as he said, we expect to do more. And part of our strategy there is to make Priority Engine our customers' data purchase intent data platform. So, become a one-stop shop for all the different datasets that customers would want to use would be integrated right into Priority Engine. And then Priority Engine, as you know, integrates right into whatever sales force automation system you're using, whatever marketing automation system you're using. So, we integrate directly with salesforce.com, Marketo, Eloqua, HubSpot, Pardot, et cetera.

Thanks, guys.

The next question comes from Allen Klee with Sidoti. Please go ahead.

Yes, hi. Can you give us some commentary on how you're doing with getting customers to buy both core and IT and how that business is tracking relative to the overall?

Yeah. Allen, this is Mike. I'll break this down in terms of global versus non-global accounts to give you some color, if that's okay. On the global side, we're seeing – as we mentioned earlier, we've been dealing with some headwinds on that, especially with the four major accounts. But we're starting to see a little bit of a transition where they are investing in the IP Deal Alert, whether it's Priority Engine or qualified sales opportunities or deal data. And we're seeing some leveling off on the core business, which is our brand and lead gen. What we have seen through the trends is if you're a non-global account, and those global accounts are the ten accounts that – you can name them. If you're a non-global account, the non-global accounts that invest in IP Deal Alert are more likely to spend on core, and their core investment has been relatively flat to down low single digits. If you're a non-global account and you're not investing in IP Deal Alert, your core spend with us is down much greater. So, it's been a very clear direction given to our sales and product teams and client services that we will lead with our data products, hook our customers on to the data product, and then go back and surround them with the core content marketing and branding elements because they work hand-in-hand with the data. And now that our data platform can actually show our clients how effective some of their content marketing strategies are, it's been the plan that we're going to continue to execute on.

The customers – the feedback we're getting from our customers that use IP Deal Alert and core, both of those solutions reinforce each other. So, if you use IP Deal Alert and core, your core will have more success and your IP Deal Alert will have some more success. So, we're telling that story to customers that the best way to maximize their ROI is by using both solutions. And the other point that's interesting about that, as Mike said, the metrics for IP Deal Alert customers on the core spend is much higher than the non-IP Deal Alert. But as we continue to grow the number of IP Deal Alert and, as you know, that's been growing nicely every quarter, that's also another positive trend for the core in 2018.

Could you just remind me how many IP Deal Alert customers you have relative to core customers?

We have about 600 IP Deal Alert customers and about 1,200 overall customers.

Thank you very much.

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

Great. Thanks a lot for taking my questions. I want to start off with the balance sheet. Can you just give us a sense of uses of all the cash? I know you obviously have $34 million or almost $35 million on the loan, $31 million in cash. At this rate of buying back stock, it looks like – just given your free cash flow, you're going to sort of tread water here. So, I'm just kind of wondering, is there some plan, just given that you weren't as successful buying as many shares back originally as you thought during that tender? Thanks.

Yeah. So, we have about $6 million left on our buyback, which we plan on executing. And then, as you said, we've got about $35 million in debt. About $11 million is due next year in 2018 against those debt payments. So, that's kind of how we're looking at spending the money over the next year or so.

Okay, great. Thanks a lot.

The next question comes from Eric Martinuzzi with Lake Street. Please go ahead.

Yeah. Just curious on the ITDA side, obviously, people are having a good experience with the product and that's why it's [indiscernible]. Do you have any – what do you have in place, I guess, to kind of expand the content? In other words, do we get – within certain verticals, do we get to a point where there's some frustration on the part of subscribers that they're not getting enough fresh deal content to satisfy their sales force?

So, you're talking about in terms of – to have future growth in terms of future functionality.

Right, right. In other words, are you guys – because you've got to chase down these deals on your own end, you've got expenses associated with that, maybe it's years out and I'm worried about something that's not an issue, but it just seems to me, at a certain point, you've got to expand the content creation side in order to satisfy the demand.

Yeah. So, first of all, I'd say our penetration rates are still very low. So, it's still very early innings at most of our customers in terms of adopting a data strategy. So, I would say, for example, many of our customers have multiple segments and they're not in all of their segments yet. Another way to tackle that, a lot of customers that are in multiple segments have an account-based marketing strategy. So, we can cut the purchase intent data that way as well. We have a product roadmap which is very robust. We'll continue to introduce new functionality based on feedback from customers. We also have a lot of runway from the two partnerships we've already announced. HG Data, we've only been doing for a couple of quarters. And DiscoverOrg, less than a quarter. so, I think that – plenty of runway. That's really – the issue you're bringing up is not really one that's on our radar screen right now. There's so many growth opportunities in front of us.

Okay. And then, you talked about double-digit growth in 2018. I'm wondering, how is that being driven? Obviously, you're adding new logos. You're expanding your footprint. Is there any element of a price increase? Are those steps being taken now? What's driving the double-digit growth there?

Great. This is Mike. In terms of the double-digit growth, there's a few areas. Number one, what we just reported was double-digit online growth for Q3. And we are seeing very consistent numbers in our guidance for Q4. If you also take of the leveling off of the global accounts that went through the transactions and putting those in our rearview mirror, that provides a little bit of catalyst. As Greg mentioned earlier, even our core business – if you look at our core online business, in Q1 of 2017, we were down 26%, Q2 23%. We just reported down 14% and we're projecting to be single digits in Q4. So, when you level off the core spend and see that stabilize and you see the growth in IP Deal Alert, it really does lay out for a double-digit growth strategy. We've also added a new sales development rep team. So, they are going after new logos as well as cross-sell and upsell and they're leading with our Priority Engine and the other IP Deal Alert products. And so, we feel that based on that information as well as – you've got to remember, we will not have to contend with any event revenue next year. So, if you recall back in February, we canceled the events in 2017, and that was a roughly $5 million business the year before. So, we will anniversary out of that as we head into 2018. So, with the core stabilizing, the high growth of IP Deal Alert, looking in the rearview mirror in terms of some of these major transactions and the – Q3 as well as what we've guided for Q4 of overall online growth being mid double digits, it really does set us up with some good momentum in 2018.

Yeah.

And I would say, there's basically five components of IP Deal Alert growth. So, we have annual subscriptions. We're obviously selling a lot of those. So, we're selling a lot of those that we're selling now, we'll recognize revenue in 2018. We continue to add new customers at a healthy clip as you've seen. Renewal rates are very healthy, which is also helping. We also are having success upselling people to more IP Deal Alert categories. We're also having success cross-selling core. And then, we also do have plans to implement a price increase in 2018. So, all of those factors will contribute to the very fast growth we're expecting with IP Deal Alert for next year.

Got it. Thanks for taking my questions.

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