Good day, and welcome to the TechTarget Fourth Quarter and Full Year 2019 Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charles Rennick, Vice President and General Counsel. Please go ahead.

Thank you, Jason, and good afternoon. Joining me here today are Greg Strakosch, our Executive Chairman; Mike Cotoia, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. 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’ve 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’ll turn the call over to Greg.

Great. Thank you, Charlie. We had a very strong Q4, capping off the most successful year in the company’s 20-year history. We have successfully transitioned the business from selling quarterly marketing campaigns to establishing ourselves as the leading provider of purchase intent data that IT vendors have integrated into their workflow to power their sales and marketing outreach. This transition has resulted in TechTarget enjoying record revenues, profits, margins, and cash flow. For Q4 2019, revenue grew 13% to $35.9 million, adjusted EBITDA grew 41% to $11.8 million. Adjusted EBITDA margin was 33% versus 26% in Q4 2018. Priority Engine revenues grew 27%, long-term contracts represented 35% of revenue in Q4 2019, up from 33% in Q4 2018. For the full year 2019, revenue grew 10% to $134 million. Adjusted EBITDA grew 39% to $41.9 million. Adjusted EBITDA margin was 31% in 2019 versus 25% in 2018. Gross margin was 76% same as last year. Incremental EBITDA margin was 92% in 2019, and adjusted free cash flow was $32 million representing 76% of adjusted EBITDA. 2019 was a breakthrough year for the company, and we have good momentum going into 2020. Our 2020 priorities are to continue to improve our product offerings, have a successful launch of Priority Engine Express, and to continue to expand margins. I will now open the call to questions.

[Operator Instructions] First question comes from Aaron Kessler from Raymond James. Please go ahead.

Great. Thanks guys. Maybe just – I think you referenced in this script, kind of the – your vast majority as kind of first-party cookies. Maybe if you can just expand on that, kind of, any exposure to third-party cookies? It doesn’t seem like much at all. And then secondly, just how should we think about kind of the incremental EBITDA margins in 2020 here, maybe it seems like a little less versus 2019. Obviously, 2019 was a great year from an incremental EBITDA margin perspective. So, maybe just talk a little bit about some of the investments you’re thinking around 2020 as well. Thank you.

Great. Aaron, in terms of the Google and the third party, they announced that they’re going to be phasing away from cookies. And so, vendors outside of TechTarget and publishers that rely on third-party data pools are going to have a challenge, we believe, over the next 1.5 years to 2 years as Google continues to phase that out. That’s one of the reasons why we’ve built a very, what I would call, a competitive advantage by owning and operating our sites, not outsourcing to third-party cookies -- third-party cookie pools, and really focused on first-party data. We do have some revenue. It’s a very immaterial amount of revenue that’s derived from leveraging some of those third-party outside networks, but if you take a look at our overall revenue in terms of how we recognize around brand and demand in our integrated programs, 15% of our overall revenue was attributed to our branding products, which is primarily online advertising that we – online branding through our owned and operated sites. And a very small portion of that relates – comes from outside the network. So we feel we’re in a pretty good position on that front.

And we don’t use any third-party cookies for our purchase intent data. All the purchase intent data is first party.

Got it. Great. And then on the second question on the incremental margins?

Yes. On your second question, throughout 2019, we invested a lot of effort in terms of – into Priority Engine. So we were able to start capitalizing a little bit more in a software development piece. We also had some onetime tax gains throughout the year. And I’d really generalize 2019. It was a year that everything that could go right, would continue to go right – went right for us. So that’s great to have. We are focusing our investments in 2020, continued focus on the Priority Engine platform, and really focusing on a lot of the sales use cases that we’re seeing our customers have. So, we want to work on integration with sales force. We want to make sure we’re investing on the product, so we can show better attribution within our customer sales force database. And we want to make sure that we can create some enhanced products to make the product extremely, extremely easy for sales teams to use. We’re going to also continue to invest in our customer success teams through technology and people, so we can manage and monitor and track the success that our customers are having with engagement within Priority Engine, because that’s very important to be able to track that. And that continues to take investment, again both on the people side as well as on the technology side. And if you look back historically, we’ve typically guided to and projected and forecasted 50% plus incremental EBITDA margin. We’re going to continue to do that. I hope that we continue to beat and exceed that, but that’s consistent with historical levels.

Great. Thank you. I’ll jump back in the queue.

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

Yes. I had a question about 2020 revenue outlook. Obviously, we’re – the guidance comes out to about 10% on the top line. I wanted to get your perspective on what could cause that to maybe come up short. If we wind up at 8% when all is said and done, and then take me to more rose-colored glasses scenario where maybe it’s 12%, 13% growth in 2020. Would – press out a little bit further in both directions for me, if you would?

Sure, Eric. I think we’re tightly aligned to IT spending, right? So we are very aligned, our business is very aligned to the enterprise IT spending in the market. We obviously grew the business. Our revenue growth exceeded the IT spending projections in 2019. And if IT spending continues to grow and do extremely well, budgets for our customers will continue to grow and do well, and they want to capture more market share and drive more revenue and hit new targets. That will be very positive for us. And on the line that will be positive for us is the adoption and implementation of our Priority Engine Express into that SMB market. As I recall, that’s the lower end product of Priority Engine. We sell that at typically about one-third price of the average price for Priority Engine standard subscription models. We feel that there’s a big opportunity in the SMB market. Now on the flip side, if IT – the IT spending declines or there’s a pullback in it or there’s massive trade wars or tariffs, that always has a macro impact and has an impact on us because it has an impact on our customers. So Greg, is there anything else you want to add on there?

Yes. I mean, there’s one more thing I would add on the upside is, our customers are in the early innings of this major transition to becoming data-driven sales and marketing organizations. And our customers are in the process of optimizing their systems and their processes to take advantage of this purchase intent data, and we’ve seen customers that have done this well, have outsized ROI, and we’ve seen them really increase their investment in our data. And that’s why we’ve made such a big investment in customer success. So, I would say if we continue to do – if we can do a good job there, that’s another place where we could see upside as our customers adopt more data as they see – as they execute well and measure their results.

Okay. You mentioned in the shareholder letter about seeing a little bit increased level of interest in pursuing M&A. Just wondering, are you seeing -- is it people approaching you with maybe non-core/distressed assets, or is it more kind of tuck-ins, VCs unable to gain scale, decent content, but no scale? What’s showing up in the prospects list?

Yes. We’re having people that are approaching us, companies that have tech communities that are – what I would classify more of a – as a tuck-in. And we want to make sure that that aligns well with our overall goals and objectives as a company. We look at sites that might not have been well monetized and well managed, but they have a good community of enterprise IT in line of business users aligned to a specific market. That is very attractive to us. And I would say over the last six to nine months, we’ve been approached several times. We want to make sure on a couple of things. It makes sense for the business and it’s a valuable tuck-in that we’re going to be able to get more intense signals. We want to make sure that those intense signals can help enable and empower our Priority Engine investments. We look at things that are also, I said, not managed in accordance with what we would see them to be managed in, and there’s operational efficiencies to be had. And then, we look for any complementary revenue opportunities with that. What we won’t do is take a look at something to make an acquisition that’s disruptive against the organic momentum and throw us off track. So, we’re very careful on that. We do get approached quite a bit. We’ve had more companies approach us. So we look at the right balance across the revenue mix, the community mix, and the intent signal mix.

And in terms of, Eric, your question about distress, we don’t buy distressed properties. So there’s other companies that, that’s part of their strategy. We’re looking for things that are high-quality, and that we think, and as Mike said, we can use our scale to monetize it better or it will contribute product-wise, but we’re not really shopping for distressed properties.

Okay. Good. Congrats on the quarter and the good outlook. Thanks.

The next question comes from Marco Rodriguez from Stonegate Capital Markets. Please go ahead.

Good afternoon, guys. Thanks for taking my questions. I was wondering if maybe you can talk a little bit more about your product road map for 2020. If you could perhaps just talk about those particular new features, kind of a road map as far as when you expect to kind of release them? And then is there going to be an incremental spend? Or is that just something that will be expensed as you go along?

Great. Yes, Marco, we typically – historically, we’ve done several product releases throughout the year. And over the last couple of years, what we’ve done is try to do – continuously adding on new features and functionality that we can put into the product and get it into – for our customers. So I’d say, a big focus for 2020 and beyond for Priority Engine is putting some of our development efforts into the sales use cases for Priority Engine. We have a very strong relationship with the marketing departments within our organizations. They know how to use our integrated campaigns. They know how to use our intent data, our branding, our lead gen content marketing efforts, you name it. And they use that really well for ABM marketing strategies or multi-touch nurture campaigns or adding on and building up their database builds and messaging, contextually aligning their messaging with our right – our most appropriate editorial sites. That’s a good thing. However, a lot of the data that the marketing departments have been buying from us have been going down to the – their sales teams. And their inside sales teams and BDRs and outside sales teams have a tighter alignment to marketing, where they’re leveraging what marketing is producing and throwing and generating for them to help them grow their own pipeline and work in their own territories and drive their own revenue. And we’ve seen a lot of successful sales use cases. And remember, when we first got into this, it was really focused on the marketing use cases, we watched this transition where sales teams within our client environment, are seeing and leveraging the data that we’re providing through Priority Engine and the integrated subscription with – some of them with wild success. So we want…

Understood. On Priority Engine Express, can you maybe talk a little bit about what that margin profile looks for that particular offering versus the enterprise version, if you will? And if maybe you can share with us if you have some – any sort of expectations or goals or markers that we can kind of take a look at as that product gets fully launched here in fiscal 2020?

Yes. So just as a reminder, the Priority Engine Express, this is our lower end Priority Engine subscription offering and it’s geared towards SMB, SMB accounts and regional resellers. We have dedicated reps selling that. They started selling Priority Engine express in the second half of last – of 2019, and the price of that is roughly one-third the price of a standard Priority Engine deal. The other thing I’d tell you on that is more color. 100% of Priority Engine Express subscriptions are annual subscriptions. So those cannot be sold quarterly and those were all annual subscriptions. In terms of the margin profile, it’s the same margin profile, because we’re leveraging all the same intent data that we have, the power is our entire universe of product and solution offerings. The only difference on it is the pricing and some of the features and functionality that we don’t allow and put in into the Priority Engine Express that we have in the other offerings. And can you repeat the second question that you had on that?

Yes, just wondering if you have any sort of goals or metrics that we can kind of follow along as you progress in fiscal 2020 with the full launch?

Thanks. We don’t break out the individual products. I mean, we do bake it in as part of our overall Priority Engine numbers, and we do report on the Priority Engine numbers. I could tell you that we’ve seen some good adoption. We’re happy with where we’re at, and we’re continuously focused on this area, too, because we believe it’s just an untapped opportunity with a lot of greenfield with a lot of small – smaller sized companies that we’ve really never had a product offering that really aligned well for those folks. So I would answer that question that it’s baked into the overall Priority Engine number.

Got it. And just last quick kind of a housekeeping item. I don’t know if I missed it in the shareholder letter, but do you have the revenue figures for the regions for Q4 for North America and international?

That’ll be in the queue.

Okay, great. Thanks.

There are no more questions in the queue. This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.