Good day and welcome to the TechTarget's First Quarter 2021 Earnings Release Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. I would now like to turn the conference over to Charlie Rennick, General Counsel. Please go ahead.

Thank you, Betsy, 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 would like to remind everyone on the call of our earnings release process. As previously announced, in order to provide you with an update on our business in advance of the call, we 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, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Please refer to our risk factors in our most recent public reports filed with the SEC, including in our annual report on Form 10-K and our quarterly reports on Form 10-Q. These statements speak only as of the date of this call, and TechTarget undertakes no obligation to update them to reflect future events or circumstances. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain 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.

Right. Thank you, Charlie. The momentum we had at the end of 2020 has carried into 2021 as we continue to benefit from strong execution and some significant tailwinds, producing the following positive results. Adjusted revenue grew 85% to approximately $59 million. Adjusted EBITDA grew 123% to approximately $19 million. Adjusted EBITDA margin was 33%. Adjusted gross margin was 75%. Longer-term contracts represented 42% of revenue, an all-time high. Free cash-flow was $12.6 million, representing 66% of adjusted EBITDA. Based on momentum we are experiencing, today, we are raising our annual guidance. We expect adjusted revenues between $245 million and $250 million. We expect adjusted EBITDA between $80 million and $85 million. I will now open the call to questions.

[Operator Instructions] Our first question is from Jason with Craig-Hallum. Please go ahead.

This is Bailey on for Jason. Just wanted to say congratulations on the quarter, and I appreciate you taking the question. One thing we notice is it seems like you guys are starting to see an opportunity, emerging and long-term subscriptions. Just wondering if you might be able to talk through what you're hearing from customers. And what gives you confidence in the acceleration in priority engine revenue?

Great. Thanks for the question. This is Mike. One of our major goals over the last few years has been to increase our longer-term revenue metrics as a total -- as a percent of total revenue. When we launched Priority Engine several years back, obviously, that was the main goal. It's very important for our customers to stay in front of their potential customers and prospects throughout the entire Priority Engine. In 2020, we saw a little bit of a pullback on that due to the COVID situation in the pandemic environment setting, in with customers pulled back in terms of their commitment to longer-term contracts. But the importance for our customers to stay in front of the, as I mentioned, prospects and existing customers is incredibly powerful based on the first-party purchase intent data that we have to offer. We finished the year last year at 4% growth. And in Q1, we've seen Priority Engine revenues grow 7%. And we're seeing better conversations and better bookings across Priority Engine, and we expect longer-term contracts associated with Priority Engine will be growing at 15% plus for the next quarter, and we predict that to happen for the remainder of the year. As you noted, we hit a record high of 42% of our long-term contracts, long-term revenue being a part of our overall revenue. We're excited to see that. We believe that the momentum, the tailwinds, where everything is going in terms of the overall market plays favorable for us. So we feel that there's some good upside in that number.

Excellent. Well, really appreciate that, and that's great news. And if I could get another related to BrightTALK. Now that you guys own it for a full quarter, just wondering if you might be able to provide any kind of tangible customer feedback on that acquisition based on what your customers are saying.

Yes. I believe our customers are very excited about the opportunity to work with TechTarget and BrightTALK together as one organization. BrightTALK brings a very unique advantage to the market, something that we did not have previously to the acquisition. Their rich content, webinar platform provides a very good opportunity to capture not only permission based members that have registered on the BrightTALK community but it also enables those audience members to throw off first-party purchase and data for our customers to leverage. TechTarget is very text-based in terms of our content syndication, our lead generation priority engine, the way we provide content to the market.So marrying that up with video-based webinars, summits, virtual trade events is very complementary and being able to capture the purchase intent signals throughout the entire buying and purchase process for every one of the account buying team members is critical. We've seen results of 30 minutes -- 30-plus minutes of average well time and viewability on a BrightTalk webinar and on a summit and webcast. So that's really important to be able to throw off very strong perk intent signals. So our customers want to see everything under one umbrella, and they're excited for it. We're excited for the opportunity. We have a lot of joint initiatives going on between the organizations to make sure that we are providing the right information. Again, it all goes back to relevant content, registered opt-in, permission-based audience members and first-party perks intent data. That is really the core value proposition that we bring together under one umbrella.

That's fantastic color. I really appreciate that. I don't want to normalize the line, but one last thing on mobile IDs and third-party cookies. That's a topic we talked about, and industry is somewhat fixated on as relate. Just curious how much this becomes a topic with customers and potential customers? I mean are we at the point where customers evaluating these privacy standards and purchasing decisions? Or do you see that becoming a key component of the conversation?

Yes. That's a great question. I'm going to really focus on one of those metrics here. First of all, privacy and compliance continues to be an ever-evolving focus for not only our customers, but their prospects and their customers that are members on our sites. Google announced last year that they would eventually eliminate the use of third-party cookies. And they have followed up with that announcement, and that is projected to end next year. That bodesvery well for TechTarget because we own and operate a massive amount of communities, over 141 enterprise technology-specific sites with over 20 million registered members, BrightTALK with over eight million registered members who are information-based, third-party cookies being eliminated, our customers really value the first-party data, the permission-based audience members. So that is actually a very favorable competitive advantage and tailwind for us, and we expect that as one of the three major tailwinds when we talk about customers modernizing their sales and marketing efforts and leveraging first-party information, first-party data and purchase intent data. The announcement of Google eliminating the third-party use of third-party cookies and then overall a budget shifting from face-to-face events to online and digital and data-driven, this all bodes well for us, not only in the short but in the long term.

Thank you very much. I think that's all we had from our corner. Congratulations again, and appreciate it.

The next question comes from Aaron Kessler from Raymond James.

A couple of questions. Maybe on the sales adoption, I know you've had some good traction with that product. Can you just give us an update on what you're seeing from sales adoption of Priority Engine. Also, maybe just an update on kind of Priority Engine Express. I assume you'll see that start to accelerate as companies start to go back in office a little bit more. And then maybe finally, just on the events kind of landscape, how do you think -- how do you expect that to progress throughout 2021? Do you expect there to still be mostly digital events and that'll be more for a permanent shift? Or do you think there could be some headwinds as events start to kick off again?

Great, Good questions, Aaron. I'm going to take them in order in terms of the sales adoption. As you remember, going into this year, we made some new updates and launched some new updates to Priority Engine, and very much -- those updates were very focused on sales adoption. We still work very closely with the marketing organizations. The marketing organizations want to make sure that they have the opportunity to target accounts and leverage their ABM strategy and drive net new. But on the sales adoption, what we noticed was and what we heard back from our customers through our customer success team was they want to access the data a little bit differently, they need it more personalized, it needs to be in their workflow, it needs to be deer territory-specific. So we're really focused on that, and that is -- we've seen some good adoption in the usage numbers continue to increase quarter-over-quarter. I think the number one move that we did on that, where we're seeing great benefit, is the prospect level intelligence. So when we looked at this before the -- when we showed the Priority Engine accounts by region or by technology segment, they would rank those at the account level from one to, you name it, to be thousands in terms of ranking. And a sales rep would take the same cadence if he or she was calling into JPMorgan. They may be talking about intelligence. But now with the individual prospect intelligence level, sellers can now understand within their own territory what individual buying team members are engaged in what and what are the point of entry. So that same example of JPMorgan or Raymond James or somebody who's looking at that account, now they can identify it and say, "Okay, Mike…

The next question comes from Justin Patterson with Keybanc Capital Markets.

Great. Two, if I can. First, appreciate the new metrics in the shareholder letter. You called out over 10,000 prospective customers. What investments you do to make to really accelerate the pace of adoption within that customer base? And then secondarily, what do you see as the key factors to add more customers that are spending over $100,000 annually?

Great. Thanks, Justin. In terms of the adoption, if you look back at the company five years ago, we probably didn't have the right product solution sets to go out there and create more adoption and acquire net new logos that would really be the long tail, right? So we identify that. We have 1,585 customers, and we believe this is a big opportunity to grow new logos at the long tail side of this, and that's a really big focus for us. With Priority Engine, Priority Engine express, the BrightTALK seminars, webinars, CREs, events, we have now a more complete product offering that will be able to help us with the long tail all the way to the enterprise. And we wanted to make sure we provided those metrics because, again, we have 1,585 customers. We think that, that shows that there's an opportunity. We've identified close to 10,000, as you noted. Other technology companies should be doing business. And as we evolve and develop the products and the solutions and cross-pollinated across all of our departments, we have a great opportunity there. We noted in the letter that we had 225 customers that spent $100,000, greater than $100,000. I think this is a really good track record to show when we get customers in because we understand their business, we have the content, the audience and we segment it and we can align near go-to-market strategy with very specific markets through our owned and operated and massive community. It bodes well. We get good relationship in there, and we start with these guys and these customers, and we grow them to six figures or more. And there were 25 customers that have spent more than $1 million. Again, these are some of the new metrics that we've laid in there. It just shows a track record of growing these customers a lot. They have different divisions, different go-to-market strategies, alliance, partners, channel, ABM and marketing, sales, inside sales. Now we have AR opportunities, product opportunities. We have a really good opportunity in that. So that's, I think, what we're going to be focused on in making sure that we're getting those -- once we get a customer in the door, we actually do a really good job of rolling that customer. I'm going to have Greg chime in for some follow-up.

Yes. So I'd say that the main as Mike said, we're selling into different groups within the organization. We're cross-selling products and we're selling into additional geographies, so that's how we're growing people to over the $100,000 and over $1 million. And then in terms of the investments to kind of hit that -- get more companies along the tail, two places we're investing. We're adding some, we are adding more sales heads to go after that, and we're also investing in more kind of self-service on the back end to support those customers. So I'd say those are the two places where investments are being made, but there -- those are fairly incremental investments. So they're not going to change the margin structure of the business as we make those investments.

Next question comes from Joshua Reilly with Needham & Company.

Great, so starting off, are you seeing customers increasingly willing to make annual commitments on priority engine? Or how should we think about the activity of customers buying quarterly versus annual subscriptions? And then second, on kind of the same point you mentioned in the shareholder letter that small customers' interest in the sales use case was pretty strong. How should we think about the applicability for both SMB and large enterprise to be buying those additional sales seats?

Good question. Josh, it's Mike. In terms of your first question, are we seeing an increase in customers looking at annual commitment, the longer-term commitments? The answer to that is, yes. What we are seeing right now is we've navigated through this pandemic. And you saw last year the numbers, Priority Engine has grown low single digits on that. It really was off to good start, and then it just really pulled back when the pandemic came in. What we saw in that were small to mid-sized companies and even some of the larger companies that might have been up for renewal, maybe they transition and pivot it to lead gen. And then the smaller companies that were ready to buy pulled back in March, April, May and into the rest of the year as they wanted to get more clarity in terms of the pandemic and the outcome. We've started seeing a little bit of, we saw a pickup at the end of Q4, as you can saw in our number as you can see in our numbers and Priority Engine growth in Q1 at 7%. And as we mentioned, we believe that the Priority Engine number will grow mid-teens plus throughout the rest of the year. So if they stay the way they are right now, we are, our conversations are good. The customers are starting to come out of the shadows and say, "We can commit to longer term." The world hasn't ended, and we're going to move forward from there. In terms of the SMB versus the enterprise, I want to make sure I get this question right, I'd say the SMBs are a little -- are different for a couple of reasons. They don't have a very sophisticated marketing stack and marketing technology flow, and…

Okay. Great. Just one more for me. So what are you seeing in demand from the kind of the global 10 vendors? We know the concentration is down pretty dramatically to roughly 20% of revenue. But they've been kind of showing some signs of life actually recently in their results. I'm just curious, how is that impacting their spend with you guys in the last couple of quarters here?

Yes. And as you can see, we saw an increase in their spend as well. And some of those -- I'd say some of those global 10 are stronger position than some of the others. I'm going to leave them nameless. Some of the folks that have really have made that transition to a cloud and SaaS-based strategy of doing quite well. Others are trying to catch up. But a lot of those companies were very heavily focused in face-to-face events, not only in North America but throughout the regions. So that transition, if they were trying to get online and be digitally driven and do a digital transformation, that has been accelerated. If they were looking at it over the next three years, that happened in the last 12 months, and now we're starting to see those global 10 focus on digital. We're seeing an always-on strategy more than we've seen before, but that could still be a little bit choppy. I would say, I'm glad you pointed out, that the concentration is roughly 20% of our overall business. 10 years ago, it was over 40% of our overall business, and that was too weighted toward those guys because they can be a little bit unpredictable and they can have quick pullbacks and quick acceleration. So we're really happy. It's been a big focus for us by driving net new logos and driving the mid-market and even that upper end of the mid-market, a low enterprise, that they are at a 20% overall concentration rate.

Great. Congrats on the quarter.

Thank you.

The next question comes from Bryan Bergin with Cowen.

His is Zack Aisman on for Bryan. Just a couple of questions from us. Starting with the legacy business. It's accelerated in recent quarters, and much of that has to do with customers, I think, for short-term marketing arrangements, which is well understood. But how should -- it's driven top line outperformance as well. How should we think about the sustainable growth rate for the non-Priority Engine business moving forward as these kind of -- these unusual growth rates decelerate going forward?

Great, Good question. Thank you. So I think in terms of the shorter-term uptick, you got to remember a few things. Number one, a lot of the business the trends that we're seeing, again, I'm going to go back to companies are shifting their budgets in North America as well as international in their field budgets face-to-face events to online. And that's a really powerful trend. And I can tell you, I don't see that going back to the numbers that it was before. Like when you go from digital -- when you ship from analog to digital, very difficult to switch back to analog if you look at in layman's terms. There's more scale, there's more flexibility, there's more intent, it is a huge cost savings for customers when they're doing that. So they're going to adopt that. So now what they do is because they were doing events before, a lot of these customers were not familiar with intent data and subscriptions around intent data. They would default or pivot to lead gen. Now they're getting comfortable with the lead generation, the band. And now they look at it and say, "Gosh, not only do I need lead gen. I need lead gen on owned and operated sites that are throwing off first-party purchase intent data because you can see the message that as people are getting -- as Google has announced the elimination of using third-party cookies, our customers want to know that we know our audience, and it's a permission-based audience on off first product purchase intent data. Now you get into that transition, where they're now getting comfortable with digital, a strategy with data. And we transition them to an integrated purchase intent, Priority Engine, through content marketing, to contextually aligned brand messaging on owned and operated sites that are driving first-party purchase intent data. That is the road map on how we take this lead generation increase to longer-term deal increase from 40% of to our goal later on to be north of 50% in a couple of years. That's really the playbook.

Got it, makes sense. And just a follow-up on Priority Engine, historically, there's been some annual feature and functionality enhancements, including some last year around enhancing the sales use case. Can you provide any notable enhancements that may be observed for this year?

Yes, that's a good question. So we had some of those sales use cases that were enhancing sales effectiveness and usage. We've updated our alert system, so sales reps can get alerts within their specific territories. One of the biggest things that we did was make sure that we customize and personalize everything to a sales reps' territories for them before it was a big batch stop. It was more set up the marketing, so we want to make sure we transition it to sales. As I mentioned earlier in the call, the prospect level intelligence. Sales rep, if you look through the life of a sales rep. On Monday, they have a call blips. And they have their 25 accounts in their territory, and maybe they have 50 accounts in their territory. And they can actually go out there and rank their accounts right in priority engine, but a lot of reps want to rank their prospects, the actual people. O prospect day might work in account one that's like one, the first account. But number two could be the most active level -- the most active individual prospect could be working for account rank two and 22nd. It's really important for reps to have that ease of use and the functionality to identify and prioritize at the prospect level as well as the account level. Better integration in the sales force has been very important. One of the things that our reps have come back, meaning our customers' reps, have come back is that we'd love to actually have more insights at the account level as well and at the individual prospect level. We have a really good opportunity with the BrightTALK account data that we can start integrating it into our sales use cases, so the reps can have more entry points while they are using Priority Engine into their territory based on the account intelligence. We're going to look at personalizing some additional territory usage for intelligence. So this is a big focus on this. There's going to be tighter integrations into not only the CRM system, which is typically sales force. And not only the marketing automation platforms, Marketo and Alico, but whatever. We're going to have looking at tight integration in the sales enablement platforms, outreach and companies like that. So that's a great question, and that's a big focus for us, and you'll see more as we announce some of these in the end of the second quarter and we look into the back half of the year.

Yes. I would just say our kind of historical cadence has been one to two major enhancements, upgrades per year, and you'll continue to see that for every year. It's early enough in this megatrend of people digitizing modernizing their sales and marketing organization, that there's still a lot of innovation coming in two ways. Our customers are innovating, and we see what specific customer is doing, and then we can integrate that for all of our customers to use. And then also, obviously, we're talking to customers all the time, and we're coming up with different innovations as well from customer feedback. So I think you'll continue to see a couple upgrades every year, and it's -- there's a very robust product road map.

[Operator Instructions]