Good day, and welcome to the TechTarget First Quarter 2018 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, Vice President, General Counsel and Corporate Secretary. Please go ahead, sir.

Thank you, Denise. 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 previous announced, in order to provide you with an update on the business in advance of call, we 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, CFO. 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, Charlie. 2018 is off to a very good start. The momentum we generated in 2017 is carried over into this year. Online revenues were up 17% in Q1. IT Deal Alert revenues were up 31% in Q1. Revenues from Priority Engine more than doubled in Q1 versus a year ago. The number of IT Deal Alert customers in Q1 was over 600, up from over, up from 450 a year ago. We had 50 new Priority Engine customers in Q1. And 34% of our revenue in Q1 was derived from longer-term contracts, up from 18% a year ago. Adjusted EBITDA was $5.2 million, up 105% versus a year ago. Today, we are raising our guidance for 2018 from our previous forecast provided on February 7. Our new higher forecast is for revenues to be between $122 million and $124 million, and adjusted EBITDA to be between $29 million and $31 million. I will now open the call up for questions.

[Operator Instructions]. Your first question will come from Brian Fitzgerald of Jefferies. Please go ahead.

Just curious, in your letter, you wrote about driving towards the goal of having 40% of revenue, representing from a longer-term contract. Just curious what you think the biggest drivers are, and what are the biggest kind of headwinds in achieving that goal over the next 2 years? And then maybe as a follow-up also, with the upcoming GDPR regulation, have you seen a lot of your clients come back and really search around how to utilize some of the stuff that you guys can offer for that? And how do you see that impacting the business in the second half?

Great. Hey, Brian, it's Mike. Relating to your first question on achieving 40% long-term revenue over the quarter, the biggest drivers of that would be our IT Deal Alert suite of products. So, allowing our customers to have continuous access to real and observed purchase intent at the account level and at the individual buying team level by very niche technology segments and by geo allows them to have access into all the insights on an ongoing basis. So, as you know, it's been a very big focus for our company to transition from a quarterly campaign-driven model to an always-on, integrated, longer-term subscription model. And having the insights that we gather through our purchase intent data and being able to deliver that to our customers, and not only deliver that to our customers, but as you've also seen through the new Priority Engine launch, being able to get that into their current workflow to help marketing and sales organizations, is going to be really the biggest driver of that. In terms of headwinds, it's just that, I would say, not necessarily a headwind, but it's really changing our customers' mindset in terms of looking at data versus being a media company. And I think through our product and sales execution, we've done a really good job of that. As you can see, if you look back a couple of years ago, that number was basically 0. Last year, at this time, it was 18%. We just reported 34%. So, we feel we're on track to achieve that goal and to exceed 40% within the next couple of years.

And one other point that I would make that is helping us, as we're having success integrating our core product with our IT Deal Alert products and our customers are starting to buy some of our core products on an annual basis, and that's really -- that's new for us, so that's helping the overall number as well.

On your second question regarding GDPR. First, with any new regulation or privacy law, it creates a little bit of chaos in the market with our customers, a little bit of confusion. It's always a short-term negative. However, as it relates to TechTarget, as we mentioned in the last earnings call in February and I even think back in November, we see this as a very compelling competitive advantage for us. You got to remember, we own the content, we own the sites, we own the audiences, we own the registration process. So, when our database, our members, our membership comes on to our sites to register, fully opt-in, is permissible consent and is based on real intent data. We are -- there are other data providers that try to get into the market as well as media companies that don't own the audience, might own the content, don't own the sites. They -- I think they're going to have a lot of challenges in terms of being able to answer clearly if they are compliant with GDPR. So, we feel that this is a big competitive advantage for us.

The next question will be from Jinjin Qian of Needham.

Thanks a lot, congrats on a great quarter. Two questions, if I may. One is, we see the core online revenue grew nicely this quarter. North America continued to accelerate from last quarter, and international almost flat year-over-year. Just think -- if you can give us some color on what you're seeing in terms of both the activities from your largest customers as well as the overall IT spending trend, given we're almost halfway through Q2, if -- are you seeing the strong trend continue for the rest -- remainder of the year? And I have a follow-up.

Jinjin, yes, so we saw, as Greg reported and we reported in the shareholder letter, we saw a 5% growth in our core business. And that was primarily attributed to the global IT vendors. Those are the 10 largest IT vendors that we report on based on our customer segmentation. And those organizations are really getting past through some of those headwinds that they had encountered in the past, which included the strong dollar, we saw large acquisitions as well as large divestitures. As this happens, we're seeing these accounts start to reengage and reinvest in the brand. So typically, when there are signs that the market is recovering, these larger comps will come back, come back fairly quickly, and it's very easy for them to turn on their brand dollars. They have a lot of brand recognition, and they can - they're familiar with that investment. So, we're starting to see those dollars come back in. However, I think it's really important to note, as we talk about that, because like I said, it's primarily driven by the large global IT vendors. The improvements in our - in the core business are also directly related to the execution on IT Deal Alert. Remember, we're capturing through IT Deal Alert and delivering and helping prioritize the right accounts and the right prospects across our customers' landscape. And we'll tell them who's in active - who's in market today and help them prioritize that based on intent data. While it's still up to them, up to our customers. They still need to go message, influence, engage, and engage with those buyers if they're thinking of them when they're in market to buy. So that's being primarily driven by the global IT vendors. In terms of IT spending trends, I'd say in the first half of the year, it's fairly consistent with 2017. Now there are definitely some signs of improving. I think one sign, which we just discussed, was when the global accounts and vendors start seeing some optimism or some signs of brightness, they'll start investing in the core. And when they invest in the core, they'll primarily go to brand. So, we're starting to see some of that. But it's not a light switch as of right now. And I think things are in line or set to see some of those benefits in IT spending pick up in the second half. If that does, which it's not in our current model right now, we would see some acceleration on the revenue side relating to our business.

So, as we expect IT spending to gradually improve, so we think that will help. That's going to - our customers' budgets for branding and lead regeneration will grow. We think we're extremely well positioned because the way we're integrating on purchase intent data in with our branding offerings and our lead generation offerings, we think, positions us extremely well to gain additional market share with our core offerings.

Great, got it. So, I'll just follow up on IT Deal Alert. It's slightly down Q-over-Q, which we haven't seen for a long time. Just trying to see if it's purely seasonality or if there's anything else that's going on. Shall we still expect kind of increasing run rate through the remaining of the year?

Yes, I will say the majority of that primarily due to seasonality, Jinjin. Q4 is our largest revenue quarter, and Q1 is our smallest revenue quarter. And if you look at total revenue, revenue from Q4 to Q1 was down approximately 10%, a little under 10%. But on the IT Deal Alert, revenue was down, I believe, approximately about 3%, 3.5%. And in terms of - when we get into the quarter, in terms of what Greg had also mentioned, too, we have a big focus on integrating all of our purchase intent solutions with our core and help supporting the core. And at the end, like we feel very comfortable that we will be able to accelerate the growth of the overall business throughout the year, hence, the raised guidance. And I think that the expectations that we have in IT Deal Alert, the 31% growth year-over-year was in line with what we had, what we expected, and we feel pretty comfortable moving forward.

The next question will be from Mike Malouf of Craig-Hallum Capital Group. Please go ahead.

If, let me start off with just a question. You commented on your letter that the purchases within IT Deal Alert and your Core Online are becoming more fluid. It sounds like they're doing sort of back and forth on some of these programs. Can you just talk a little bit more about that and give us a little bit of color on that?

Yes. I mean, I can start and, Greg, you can chime in if you want. When some of our, like, if you go on like Q1, for example, Mike, and our customers are trying to get their budgets settled and trying to get the annual and quarterly budgets on there, they may do some bridge campaigns, and they may be very focused on what we call campaign-centric type of activities, where it could be some core business, lead gen and branding, and it could switch over quickly to some of our IT Deal Alert because it's very campaign-centric. As you know, the overall goal for the organization is to really have an always-on, integrated approach where everything we do is powered by purchase intent, whether it's our data products, our core products, our lead generation products. We've been really trying to focus on that through some of the products in terms of, like, Priority Engine and showing the value of the core business that you can visibly see, so our customers can see what is working for them in the core. So, there is some back-and-forth, there's some fluidity to that. You know what I'd like, I think it's important to highlight that our margins across all of our products are the same, whether it's IT Deal Alert, whether it's any of the specific IT Deal Alert products, branding or core, they're all consistent. So, we're in a really good position. Instead of leading with a specific product to sell, we can sell really what's best for our clients and maintain the same gross margins and see the overall growth, as positioned in the overall raised guidance.

Okay, great. And then do you think, though, that when you sort of think about how these are starting to become more, I don't know, call it attached at the hip, do you think that the Core Online business is still able to grow in the right environment, of course, back up to kind of that $20 million to $22 million a quarter range that we were at a few years ago?

I do. I mean, we discussed this. It's a great question. We discussed this last quarter, last couple of quarters. We really do, and I think the real driver of this is the IT Deal Alert solutions. So, imagine, when we walk into a client and we can show them, and this client is focused on a specific technology solution, whether it's in North America or EMEA or APJ and we just recently launched in Latin America, that we can show them the data that says, here is, here are all the accounts, your customers and prospects. So, we can rank from one to thousands. And how we can help them prioritize it as well as the active prospects within those accounts that are actually engaged in this. Well, we're showing them that these are in market and things have a higher propensity to buy an upcoming solution. But we can also show them right in the Priority Engine tool that they are not engaged with you and your marketing content. So, when you go back to show them, and they know that the data is real, they know that TechTarget has the purchase intent insights and the capabilities and the leadership position, the equation is simply put where at the end, they have to engage with these folks, and they do it with content marketing and branding elements so that they can actually help move the needle against the most active accounts and prospects in their market.

Okay, that’s very helpful. Thanks, thanks for taking my question.

The next question will be from Marco Rodriguez of Stonegate Capital. Please go ahead.

I was wondering if you could talk a little bit more in regard to these always-on programs. Just kind of trying to understand a little bit more here from your perspective in terms of sales and marketing efforts and branding to your individual customers. Can you provide a little bit of color as far as how your sales teams are kind of approaching customers out there?

Yes. Marco, I mean, if you look back a couple of years ago, we used to lead with media and lead generation and branding programs. But now that we have a position and the leadership position in the enterprise B2B IT market of having access to purchase intent insights, and those insights change weekly, monthly, quarterly, and we can show our customers how to do that, our sales force is leading with our data solutions and primarily leading with our Priority Engine platform, which is allowing our customers to have insights, access to the purchase intent insights happening in our world across our universe of sites and topics and now talking about integrating that insight or Priority Engine purchase intent insight platform right into our customers' workflow. So, what we're doing now is making sure that we're leading with data. We can show them, as I mentioned on the -- with the previous caller, what accounts are active and what accounts are active with your competitors, oh, and what accounts are not active with you. Then we want to integrate it right into our customers' workflow through their marketing automation systems or their salesforce.com. We just released a new update in Priority Engine, which really helps bridge the gap between -- well, I should say the handoff between marketing and sales. And then instead of just being focused on this data, having that always-on content marketing, some will refer to as content syndication, and branding elements where when we talk about brand, it's contextually aligned and relevant branding messaging against the most appropriate editorial content, always along with that where we can show them week-over-week and month-over-month and quarter-over-quarter, not only are these the accounts and the active buyers that are in the market to buy, but here is your consideration in terms of engagement with those active buyers and prospects and accounts. And being able to visibly show that really highlights not only the data that we're producing is working, but the marketing efforts today are now aligned with this always-on strategy is being effective.

Understood. And you mentioned in one of your answers to a prior question that some clients have, I guess, either started or are just starting to buy some of the core businesses from you guys on an annual basis. Is that something that you guys have been putting through to the individual customer or something that kind of happened, I guess, organically, if you will, from a customer that had some interest?

Yes. So basically, what we do is we go into the customer whatever technology segment they sell. And we basically say, hey, would you be interested if we could show you every active account that is active in your segment? And people typically say, yes, we would want it -- we want to know that and we want to have that, kind of always have that because, as Mike said, that's always changing. So that's the always-on. Then the second question we say is, okay, well, it makes sense that you want to know who all the active prospects are at any one time. Don't you also want to be actively influencing and messaging those active prospects with your branding messages and with your content at all times? And as you - the natural answer to that is, yes, we do want to be in front of those. So, we basically say to customers, hey, that should be your always-on strategy, you always know who's active in the market, you're always messaging to those people, and you should do that under an annual contract. And that's - we're having a lot of success doing that, selling both the IT Deal Alert, and most of the annual contract is for IT Deal Alert, but we're starting to have good success integrating in the core products. And then we - then we also say - and then as different initiatives come up during the year, different quarterly campaigns because you announced a new product or you have a specific offer against a competitor, whatever campaigns come up, quarter-to-quarter, we can serve those for you as well on a campaign basis with a combination of IT Deal Alert offerings and core offerings. But definitely, the always-on combination of IT Deal Alert and core is a key go-to-market for our sales team, and it's been very popular with our customers.

Got it. And the pricing of those - the always-on product you sell from the wrapping in of the IT Deal Alert and core, is the pricing similar if they were priced separately and just kind of combine them? Or do - is there some sort of incentive to bundle them together?

The core and the IT Deal Alert have very different pricing models. We do provide a little bit of incentive when you integrate everything in there, and that's really a big focus of our business. It's always on, it's long-term subscription revenue in the quarter as well as integrating the core within the IT Deal Alert data sets. So...

The pricing incentives tend to be for buying annually versus quarterly. So, it's more annually versus quarterly where the pricing incentives are. I mean, obviously, someone is buying a lot of both core and we make it some sort of token discount. But primarily, the incentives are around annual versus quarterly.

Understood. Thanks a lot guys. I appreciate your time.

Thank you.

And ladies and gentlemen, with no additional questions, we will conclude the conference call. We thank you for attending today's presentation. At this time, you may disconnect your lines.